Anderson Wright Ltd. Vs. Moran and
Company [1951] INSC 50 (1 November 1951)
MUKHERJEA, B.K.
BOSE, VIVIAN JAGANNADHADAS, B.
CITATION: 1955 AIR 53 1955 SCR (1) 862
CITATOR INFO :
E 1973 SC2071 (5) R 1975 SC 469 (6) D 1985
SC1156 (59) R 1989 SC 839 (18,25)
ACT:
Arbitration Act, 1940 (X of 1940), s. 34
-Application under the section for stay of legal proceedings-Necessary
conditions-Fulfillment of-First essential pre-requisite for an order of
stay-Binding arbitration agreement between the parties-Incumbent upon the Court
to decide this-point.
HEADNOTE:
Held, that in order that a stay may be
granted under s. 34 of the Indian Arbitration Act, 1940, it is necessary that
the following conditions should be fulfilled:(1) The proceeding must have been
commenced by a party to an arbitration agreement against any other 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 proceeding and he must have taken no step in the proceeding after
appearance. It is also necessary that he should satisfy the court not only that
he is, but also was at the commencement of the proceedings, ready and willing
to do everything necessary for the proper conduct of the arbitration ; and (4)
the Court must be satisfied that there is no sufficient reason why the matter
should not be referred to an arbitration in accordance with the arbitration
agreement.
The first and essential pre-requisite to
making an order of stay under a. 34 of the Arbitration Act is that there is a
binding arbitration agreement between the parties to the suit which is sought
to be stayed. The question whether the dispute in the suit falls within the
arbitration clause really pre-supposes that there is such agreement and
involves consideration of two matters, viz., (1) what is the dispute in the
suit and (2) what disputes the arbitration clause covers.
It is incumbent upon the Court, when invited
to stay a suit under s. 34 of the Indian Arbitration Act, to decide first of
all whether there is a binding agreement for arbitration between the parties.
If, in the present case, it is held that the
arbitration agreement and the contract containing it were between the parties
to the suit, the dispute in the present suit would be one relating to the
rights and liabilities of the parties on the basis of the contract itself and
would come within the purview of the arbitration clause 863 worded as it is in
the widest of terms. If, on the other hand, it is held that the plaintiff was
not a party to the agreement, the application for stay must necessarily be
dismissed.
Case sent back for the decision of the
question whether the respondent was or was not a party to the arbitration
agreement.
Heyman v. Darwins ([1942] A.C. 356), Khusiram
v. Hanutmal ((1948) 53 C. W.N. 505), A. M. Mair and Companay v. Gordhandas
([1960] S.C.R. 792) and Patiram Y. Kankarah Company ((1915) I.L.R. 42 Cal. 1050) referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 205 of 1953.
Appeal from the Judgment and Order dated the 24th February, 1953, of the High Court of Judicature at Calcutta in Appeal from
Original Order No. 19 of 1952, arising out of the Order dated the 23rd day of
August, 1951, of the High Court of Calcutta in its Ordinary Original Civil
Jurisdiction Matter No. 157 of 1951.
K. P. Khaitan, (S. N. Mukherjea and Rajinder
Narain, with him) for the appellant.
M. C. Setalvad, AttorneyGeneral for India, (A. N. Sen, V. S. Sawhney and S. P. Varma, with him) for the respondents.
1954. November 1. The Judgment of the Court
was delivered by MUKHERJEA J.-This appeal is directed against a judgment of an
appellate bench of the Calcutta High Court, dated the 24th February, 1953,
reversing, on appeal, the judgment and order of a single Judge sitting on the
Original Side of that Court, passed on an application under section 34 of the Arbitration
Act. The material facts are not in controversy and may be shortly stated as
follows:
On the 7th of July, 1950, the respondent,
Moran and Company Limited, passed two Bought Notes to the appellant company,
couched in identical terms, under which the appellant purchased 12,00,000 yards
of hessian cloth, 6,00,000 yards under each contract, on certain terms and
conditions stated therein. The delivery was to be made every month from
January, 1951, at the rate of 1,00,000 yards per month under 864 each of these
notes and payments were to be made in cash 'on delivery, each delivery being
treated as a separate and distinct contract. The Bought Notes commenced thus:
Dear Sirs, We have this day Bought by your
order and on your account from our Principals." The particulars of the
goods, the price, the time of delivery and other terms of the contract are then
set out and amongst the terms is an arbitration clause worded as follows:
" All matters, questions, disputes,
differences and/ or claims arising out of and/or concerning and/or in
connection with and/or in consequence of 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 Chamber of Commerce -under the rules of its
Tribunal of Arbitration for the time being in force and according to such rules
the arbitration shall be conducted." The notes were signed by the
respondent, Moran and Company, describing themselves as brokers.
It is admitted that the goods covered by the
Bought Notes were delivered to the appellant in all the months from January to
June, 1951, with the exception of the goods due to be delivered for the month
of March, 1951. The appellant required from the respondent delivery of goods in
respect of the month of March but the latter informed -the appellant, by a
letter dated the 27th March, 1951, that its principals disowned a liability in
this respect as there was default on the part of the appellant in not giving
shipping instructions for the said goods within the time mentioned in the
contracts. The appellant denied any default on its part and did not also accept
the position that the respondent had any principal, and on the 27th of April,
1951, it sent its bills to the respondent claiming Rs. 1,13,042-3-0 as damages
for non-delivery of the 865 goods. As the respondent did not comply with this
demand, the appellant contemplated referring the matter in dispute to the
arbitration of the Bengal Chamber of Commerce as provided in the contracts and
while it was preparing to take steps in that direction, the respondent, on the
11th of June, 1951, filed a suit against the appellant in the Original Side of
the Calcutta High Court (being Suit No.
2516 of 1951,) and it is in respect of this
suit that the application under section 34 of the Arbitration Act has been
made. It was alleged in the plaint that the plaintiff acted merely as broker
and in that capacity brought about the two contracts of sale and purchase
evidenced by the two Bought Notes mentioned above, that the real seller was a
firm known as Gowarchand Danchand, and that the plaintiff not being a party to
the contract could not incur any liability under its terms. There were prayers
in the plaint for a declaration that the plaint. off was not a party to the
said contracts and, that it had no liability under the same.
There was a further prayer for an injunction
restraining the respondent from, claiming any damages in respect of the said
contracts The writ of summons was served on the appellant on the 23rd of June,
1951. On the 19th July, 1951, it filed an application under section 34 of the Arbitration
Act praying that the proceedings in the suit may be stayed in order that the
matter in dispute between the parties may be dealt with under the arbitration
clause contained in the contracts.
The application was heard by Das Gupta J. who
allowed the prayer of the applicant and stayed further proceedings in the suit.
In the opinion of the learned Judge the dispute in this case was not whether
there was any contract entered into by and between the appellant and the
respondent: but whether the respondent, who admittedly passed the two Bought
Notes to the appellant, could be made liable under the contract by reason of
the fact that it described itself as broker. The answer to this question
depended according to the learned Judge upon the interpretation of the contract
itself and the dispute arising as. it did out of or concerning or relating to
the 866 contracts would come within the purview of the arbitration clause.
Against this judgment the respondent took an appeal
to the Appellate Division of the High Court and the appeal was heard by a bench
consisting of Chakravartti C.J. and Sarkar J. By two separate judgments which
concurred in the result, the Chief Justice and the other learned Judge allowed
the appeal and vacated the order for stay. It is against this judgment that the
appellant has come to this Court on the strength of a certificate under article
133(1)(a) of the Constitution. The short point for our consideration is,
whether on the facts of this case, the appellant is entitled to an order under
section 34 of the Arbitration Act, staying the proceedings of the suit
commenced by the respondent.
Section 34 of the Arbitration Act is in these
terms:
" Where any party to an arbitration
agreement or any person claiming under him commences any legal proceedings
against any other party to the agreement or any person claiming under him in
respect of any matter agreed to be referred, any party to such legal
proceedings may, at any time before filing a written statement or taking any
other steps in the proceedings, apply to the judicial authority before which
the proceedings are pending to stay the proceedings; and if satisfied that
there is no sufficient reason why the matter should not be referred in
accordance with the arbitration agreement and that the applicant was, at the
time when the proceedings were commenced, and still remains, ready and willing
to do all things necessary to the proper conduct of the arbitration, such
authority may make an order staying the proceedings." Thus in order that a
stay may be granted under this section, it is necessary that the following
conditions should be fulfilled:(1)The proceeding must have been commenced by a
party to an arbitration agreement against any other 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 867 (3)the
applicant for stay must be a party to the legal proceeding and he must have
taken no step in the proceeding after appearance. It is also necessary that he
should satisfy the Court not only that he is but also was at the commencement
of the proceedings ready and willing to do everything necessary for the proper
conduct of the arbitration; and (4)the Court must be satisfied that there is no
sufficient reason why the matter should not be referred to an arbitration in
accordance with the arbitration agreement.
The third condition can be taken to have been
fulfilled on the facts of the present case, and the fourth is one which is
exclusively for the determination of the Court. The controversy between the
parties centres round the other two conditions, namely, conditions (1) and (2)
; and unless the applicant for stay succeeds in establishing that the
respondent is a party to an arbitration agreement and that the subject-matter
of dispute in the suit is a matter coming within the scope of such agreement,
it cannot possibly ask the Court to order a stay of the proceedings, under
section 34 of the Arbitration Act. The learned Judges of the appellate bench of
the High Court have taken the view that the only matter in dispute between the
parties to the suit is whether the plaintiff was a party to the contract. It
was definitely alleged by the plaintiff that the contract was not between it
and the appellant but was one between the appellant and a third party and since
the arbitration agreement is contained in the contract, it is an agreement
between those parties only, which could not bind or affect the plaintiff in any
way. The dispute, it is said, which is the subject-matter of the suit does not
arise under the contract and does not relate to it; it is outside the contract
altogether and does not come within the scope of the arbitration agreement. The
decision in the appeal therefore rests entirely on the finding of the learned
Judges that the matter in dispute between the parties to the suit does not come
within the ambit of the arbitration clause. In view of this decision the
learned Judges did not consider it necessary to go into the first point as to
whether in fact 868 there was a binding arbitration agreement between the
parties to the suit. The learned Chief Justice no doubt did in a manner
consider that point also, but he refrained from pronouncing any decision upon
it, being of opinion that a decision on this question which was the only issue
in the suit itself might prejudice the parties and create a bar of res judicata
against one or the other.
We think that on the facts of this case it
was necessary for the learned Judges of the appellate bench to decide the
question as to whether or not the plaintiff in the suit which the applicant
wants to stay was a party to the arbitration agreement. This would have a
material bearing on the decision of the other question upon which the learned
Judges rested their judgments.
The first and essential pre-requisite to
making an order of stay under section 34 of the Arbitration Act is that there
is a binding arbitration agreement between the parties to the suit which is
sought to be stayed. The question whether the dispute in the suit falls within
the arbitration clause really pre-supposes that there is such agreement and
involves consideration of two matters, viz., (1) what is the dispute in the
suit and (2) what disputes the arbitration clause covers?(1). The contention
raised by the plaintiff in the present suit is, that the contract was really
between the appellant and another party and not between it and the appellant
and consequently it was not bound by the contract and could not be made liable
for any damages in terms thereof. In substance therefore the controversy
between the parties in the suit is whether the plaintiff did incur any
liability in terms of the contracts evidenced by the two Bought Notes to which
it was a signatory no matter in whatever capacity. The question whether the
plaintiff was a party to the agreement at all is undoubtedly one which cannot
go before the arbitrators and with that question they cannot possibly deal. But
as Lord Porter pointed out in Heyman v. Darwins (2), "this does not mean
that in every instance (1) Vide per Viscount Simon in Heyman v. Darwins, [1942]
A C. 356 at 360.
(2) [1942] A.C. 356, 393.
869 in which it is claimed that the
arbitrator has no jurisdiction the Court will refuse to stay an action. If this
were the case such a claim would always defeat an agreement to submit disputes
to arbitration, at any rate until the question of jurisdiction had been
decided. The Court to which an application for stay is made is put in possession
of the facts and arguments and must in such a case make up its mind whether the
arbitrator has jurisdiction or not as best it can on the evidence before it.
Indeed, the application for stay gives an opportunity for putting these and
other considerations before the court that it may determine whether the action
shall be stayed or not." Section 34 of the Arbitration Act as is well
known is a virtual reproduction of section 4 of the English Arbitration Act of
1889. The observations quoted above were approved of by Mr. Justice S. R. Das
in the case of Khusiram V. Hanutmal (1) and it was held by the learned Judge
that where on an application made under section 34 of the Arbitration Act for
stay of a suit, an issue is raised as to the formation, existence or validity
of the con. tract containing the arbitration clause, the Court is not bound to
refuse a stay but may in its discretion, on the application for stay, decide
the issue as to the existence or validity of the arbitration agreement even
though it may involve incidentally a decision as to the validity or existence
of the parent contract.
We are in entire agreement with the view
enunciated above.
As we have said already, it is incumbent upon
the Court when invited to stay a suit under section 34 of the Arbitration Act
to decide first of all whether there is a binding agreement for arbitration
between the parties to the suit.
So far as the present case is concerned if it
is held that the arbitration agreement and the contract containing it were
between the parties to the suit, the dispute in the present suit would be one
relating to the rights and liabilities of the parties on the basis of the
contract itself and would come within the purview of the arbitration clause
worded as it is in the widest of terms, in accordance with the principle
enunciated by this Court in A. M. Nair and Company v. Gordhandass (1). If on
the other hand it is held that the plaintiff was not a party to the agreement,
the application for stay must necessarily be dismissed.
The appellate Judges of the High Court in our
opinion held rightly that the decision in A. M. Mair and Company v. Gordhandass
(1) was not in any sense conclusive in the present case on the question of the
dispute in the suit being included in the arbitration agreement. The report
shows that the dispute in that case was whether the appellants had made the
contract in their own right as principals or on behalf of the Bengal Jute Mill
Company as agents of the latter. The decision -of this question was held to
turn upon a true construction of the contract and consequently it was a dispute
under or arising out of or concerning the contract. The judgment proceeds on
the footing that there was in fact a contract between the parties and the only
dispute was in which character they were parties to it, the respondents
contending that the appellants were not bound as principals while the latter
said that they were. Mr. Justice Fazl Ali in delivering the judgment pointed
out that the error into which the learned Judges of the appellate bench of the
High Court appeared to have fallen was their regarding the dispute raised by
the respondent in respect of the position of the appellants under the contract
as having the same consequence as a dispute as to the contract never having
been entered into.
In this case it is certainly not admitted that
the respondent was a party to the contract. In fact that is the subject-matter
of controversy in the suit itself. But, as has been said already, the question
having been raised , in this application, under section 34 of the Arbitration
Act, the Court has undoubted jurisdiction to decide it for the purpose of
finding as to whether or not there is a binding arbitration agreement between
the, parties to the suit. It has been said by Chakravartti C.J. and in our
opinion rightly, that if the person whose concern with the agreement is in
question is a signatory to the contract and formally a contracting party, that
will be sufficient to enable the Court to hold for purposes of section 34 that
he is a party to the agreement. It was the contention of the respondent in the
Court below that this test was not fulfilled in the present case. The point has
been canvassed before us also by Mr. Sen and it has been argued on the
authority of several decided cases that in cases of this description the Bought
Note is a mere intimation to the buyer, that the orders of the latter have been
carried out and purchases have been made from other persons and not from them.
The writer does not thereby become a party to the contract of purchase and sale
even as an agent. He remains a mere broker or intermediary and the provision of
section 230(2) of the Contract Act 'Cannot be invoked against him. Mr. Khaitan
on the other hand argues that the English law being quite different from the
Indian law regarding the liability of an agent contracting on behalf of an
undisclosed principal, the English authorities are no guide to a solution of
the problem. It is said that the case of Patiram Banerjee v. Kanknarrah Co.,
Ltd.(1), upon which the respondent relies, was wrongly decided being based upon
English authorities which have no application to India. The respondent here, it
is pointed out, signed an elaborate document setting out in full every particular
of the contract entered into and it is impossible to say that he was not an
agent executing a contract on behalf of another whose identity he did not
disclose but was a mere intermediary conveying an information to the buyer. In
our opinion, the point is not free from doubt and requires careful
consideration and as it was not decided by the learned Judges of the High Court
and we have not the advantage of having their views upon it, the proper course
for us to follow would be to send the case back for a hearing of and decision
on this point. We, therefore, allow the appeal and set aside the judgments of
both the Courts below. The matter will go back to the appellate bench of the
Calcutta High Court which will decide as an issue in the proceeding under section
34 of the Arbitration Act the question whether the respondent was or was not a
party to the arbitration agreement. If the Court is of opinion that the
respondent was in fact a party, the suit shall be stayed and the appellant
would be allowed to, proceed by way of arbitration in accordance with the
arbitration clause.
If on the other hand the finding is adverse
to the appellant, the application will be dismissed. The appellant will have
its costs of this appeal. Further costs between the parties will abide the
result.
Appeal allowed.
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