Food Corporation of India Vs. M/S.
Thakur Shipping Co. Ltd. & Ors [1974] INSC 273 (19 December 1974)
GUPTA, A.C.
GUPTA, A.C.
KRISHNAIYER, V.R.
GOSWAMI, P.K.
CITATION: 1975 AIR 469 1975 SCR (3) 146 1975
SCC (4) 815
ACT:
Arbitration Act (10 of 1940), s. 34-'Ready
and willing at the time when the proceedings were commenced to do all things
necessary to the proper conduct of arbitration'-Scope of.
HEADNOTE:
The appellant chartered two ships belonging
to the 2 respondents for carrying rice from Thailand to India. The
Charter-party provided inter alia that any dispute should be referred to 2
arbitrators one to be nominated by the owners and the other by the Charterers.
The appellant made claims against one respondent for damages for short
delivery, and against the other for damages for short delivery and damage in
respect of the consignment of rice. The appellant, thereafter. suggested to one
of the respondents to agree to arbitration 'by a single arbitrator, but there
was no response from that respondent. The appellant also wrote to the agents of
the other respondent urging them to take steps for referring the dispute, but
the appellant only got evasive replies.
The appellant, a few days before the claims
would be barred by time. filed suits against each of' the respondents for
recovery of the amounts claimed by it.
The respondents applied for stay of trial of
the suits under s. 34 of the Arbitration Act, 1940. The trial court rejected
the applications, but the High Court allowed the prayer for stay on the ground
that the decision of the trill court was perverse.
Allowing the appeals to this Court,
HELD): (1) Under s. 34, one of the conditions
that the applicant for stay should satisfy the court is that not only 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. Where a party to an
arbitration, agreement chooses to maintain silence in the face of repeated
requests by the other party to take steps for arbitration, the case is not one
of mere inaction.
Failing to act %,hen a party is called upon
to do so is a positive gesture signifying unwillingness or want of readiness to
go to arbitration especially when legal proceedings in Court were about to be
barred by time. [150FG; 151E-F; 152C] In the present case. one of the
respondents sent evasive replies to the appellant in reply to the appellants
letter urging them to take steps for referring the dispute to arbitration.
As regards the other respondent. the
appellant's suggestion of a sole arbitrator was contrary to the arbitration
clause of the charter-party, but the appellant's deviation was not a valid
excuse for that respondent to remain silent and inactive. If the respondent was
ready and willing to go to arbitration. the respondent would have replied that
it was not willing to any departure from the arbitration clause, but it did not
send any replies to the appellant or do anything for reference of the dispute
to arbitration according to the arbitration clause. [152A-C] The trial court
found as a fact that the respondents were not ready and willing to go to
arbitration at the time when the suit was instituted. Silence and inaction on
their part mayin the circumstances, very well justify the inference that they
were not ready and willing to go to arbitration.
The conclusion was not arbitrary or Perverse
and the High Court was wrong in so characterizing it. [151G; 152C] Anderson
Wright Ltd. v. Moran and Company [1955] 1 SCR 862 followed.
147 Subbal Chandra Bhur v. Md. Ibrahim &
Anr. AIR 1943 Cal. 481 referred to.
(2) It is true that a court should not allow
a party to an arbitration agreement to proceed with the suit in breach of the
solemn obligation to seeker sort to the tribunal selected by him; but this is
subject to the terms of s. 34, one of which is that the other party to the
agreement must remain 'ready and willing to do all things necessary for the
proper conduct of the arbitration.' [152E-F] Michael Coloderz & Ors. v.
Serajuddin and Company [1964] 1 SCR 19 referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal
No. 1518 and 1519 of 1974.
Appeal by special leave from the judgment
& order dated the 8th August 1973 of the Madras High Court in A.A.D. Nos.
389 and 401 of 1971.
M.Krishna Rao and B. Parthasarthy, for the
appellant (in C.A. No. 1518/74.) Niren De, Attorney General for India and B.
Parthasarthy, for the appellant (in C.A. No. 1519/74.) N.M. Ghatate and S.
Balakrishnan, for respondent No. 1 (in C.A. No. 1518/74).
S.T. Desai, N. M. Ghatate and S.
Balakrishnan, for respondents (in C.A. No. 1519/74.) The Judgment of the Court
was delivered by GUPTA, J. In these two appeals by special leave the appellant,
Food Corporation of India, challenges the correctness of two orders passed by
the High Court of Madras staying under sec. 34 of the Arbitration Act two suits
for damages it had instituted in the Court of the Subordinate Judge at Tuticorin.
The question for consideration is whether the first respondent in each of these
two appeals, who are the first defendant in the respective suits out of which
these appeals arise, was " ready and willing to do all things necessary to
the proper conduct of the arbitration" as required by sec. 34. This is
really a question of fact and the trial court found that in neither case the
defendant who applied for stay satisfied this test. On appeal, the High Court
stayed the suits reversing the, decision of the trial court by two separate
orders passed on the same day.
Whether the High Court acted rightly would
depend upon the facts and circumstances of the two cases which are essentially
similar. It is necessary therefore to state briefly the facts leading to the
institution of the suits.
The appellant Food Corporation of India,
referred to hereinafter as the Corporation, chartered two ships belonging
respectively to M/s. Thakur Shipping Co. Ltd. and the Great Eastern Shipping
Co. Ltd. for carrying rice from Thailand to India. The Charter-Party between
the 148 Corporation and the shipping companies contained a clause, namely
clause 42, which reads as follows :
"Any dispute under this charter to be
referred to arbitration in India one Arbitrator to be nominated by the owners
and the other by the charterers and in case the Arbitrators shall not agree
then to the decision of an umpire to be final and binding upon both
parties." The bills of lading provided inter alia that the contract
between the parties was subject to the Indian Carriage of Goods by Sea Act,
1925 and that the provisions of the Act would be deemed as incorporated in the
bills of lading. The bills of lading contained a clause that "no suit
shall be maintained unless instituted within one year after the date on which
the ship arrived or should have arrived at the port of discharge
notwithstanding any provision of law of any country or state to the contrary.
The Indian Carriage of Goods by Sea Act, 1925 in clause 6 of Article III of the
Schedule also provides inter alia that"the carrier and the Ship shall be
discharged from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the date when goods
should have been delivered".
The ship belonging to M/s. Thakur Shipping
Co. Ltd., first respondent in Civil Appeal No. 1518 of 1974 and first defendant
in suit No. 103 of 1970 out of which this appeal arises, arrived at Tuticorin
Port, which is the, port of discharge., on August 31, 1969 and discharge of
cargo was completed on September 13, 1969. The Corporation made a claim for
damage for short delivery, provisionally on November 29, 1969 and finally on
January 24, 1970. On July 2, 1970 the Corporation sent a telegram to the second
defendant in the suit, M/s. Pent Ocean Steamship Private Ltd., Bombay, who were
the Operating Managers of the ship concerned, asking them to confirm whether
they were agreeable to refer the dispute as to short delivery to the sole
arbitration of the Director General Shipping, Bombay stating that the matter
was ,'most immediate". it is to be noted that the proposed reference to
the sole arbitration of Director General Shipping was a deviation from, clause
42 of the Charter-Party. There was no reply to this telegram. On July 8, 1970
another telegram repeating the earlier proposal was sent to the second
defendant again emphasizing the urgency of the matter. On July 9, 1970 the
second defendant sent a reply saying that they were no longer the Operating
Managers and asking the Corporation to contact the first defendant for further
advice. The Corporation then sent a telegram on July 10, 1970 to the first
defendant seeking to know if they were agreeable to have the dispute referred
to the sole arbitration of Director General Shipping, Bombay repeating that the
matter was "most urgent". The first defendant chose not to answer the
telegram. Any reminder after this, one expected, would be sent to the first
defendant but on July 25, 1970 the Corporation telegraphically asked the second
defendant again to nominate an arbitrator in terms of clause, 42 of the Charter
Party in case the proposal for arbitration by the Director General Shipping,
Bombay was not acceptable. In this telegram it was stated that the time within
which the claim should be made was to expire shortly and that failure on the
Part 149 of the other side to take prompt action for reference of the dispute
to arbitration would compel the Corporation to take legal proceedings. Failing
to get any response from the other direction, the Corporation ,on August. 31,
1970 instituted suit No. 103 of 1970 in the Court of the Subordinate Judge at
Tuticorin for recovery of Rs. 1,57,724/73p. on account of short delivery and
damage to the rice shipped. A few days more delay would have barred the claim.
Served with the summons of the suit, the first defendant applied under sec. 34
of the Arbitration Act for stay of the suit. As stated already, the trial court
rejected the application, on appeal the High Court reversed that decision and
allowed the prayer for stay on the view that the trial court had failed to
exercise its discretion properly. Civil Appeal 1518 of 1974 arises out of this
order.
The facts in Civil Appeal 1519 of 1974 are
these. The ship belonging to the first respondent in this appeal, the Great
Eastern Shipping Co. Ltd., arrived at Tuticorin Port from Thailand on August
15, 1969 and discharge of cargo was completed on August 27, 1969. By a letter
dated November 29, 1969 addressed to the steamer agents of the first
respondent, the clearing agents of the Corporation made a claim for short
delivery and damage in respect of the consignment of rice. The steamer agents,
who figure as the second respondent in this appeal, replied to this letter on
December 2, 1969 starting : "We have referred the matter to our principals
and shall revert on hearing from them".
After waiting for about four months, the
clearing agents of the Corporation again wrote to the second respondent asking
them to contact their principals and to "settle the claims
immediately". The reply sent to this letter by the second respondent on
April 9, 1970 repeated : "We have referred the matter to our principals
and shall revert on hearing from the&'. Having heard nothing for about a
month, the clearing agents of the appellant wrote again to the second
respondent on May 11, 1970 wanting to know the attitude of the first respondent
regarding the, claim adding that if the claim was not settled in time the appellant
would have to take legal action to recover the amount of claim. By their letter
dated May 14, 1970 the second respondent acknowledged receipt of that letter
and repeated for the third time that they had referred the matter to their
principals and "shall revert on hearing from them". Thereafter on
July 9, 1970 the second respondent wrote again to the appellant's agents only
to know how the appellant had disposed of the damaged rice adding that this
information would enable them to advise their principals. Finally, on July 29,
1970 the District Manager, Food Corporation of India, Tuticorin, wrote to the
first respondent stating, inter alia, that if the claim was not settled on or
before August 13, 1970 the appellant would be constrained to take legal action.
From the dates given above, it would appear that the claim was going to be
barred in a few days. To this letter there was no reply. On August 14, 1970 the
Corporation instituted suit No. 101 of 1970 in the Court of the Subordinate
Judge at Tuticorin for recovery of a sum of Rs. 1,12.420.70p.
impleading as the first and second defendant
respectively the first and second respondent of this appeal. Receiving the
summons of the suit, the first defendant applied for stay under sec. 34 of the Arbitration
Act. The trial court 150 declined to stay the suit and rejected the
application. on appeal the High Court held that the decision of the trial court
was perverse and allowed the application for stay.
Civil Appeal 1519 of 1974 is directed against
this order of the High Court.
The trial court held that the fact that the
in either case the first defendant took no steps for referring the matter to
arbitration in spite of being urged to do so by the plaintiff indicated that
the defendants were not ready and willing to go to arbitration and were only
waiting for the claim to be barred by lapse of time. As stated already, the
bills of lading contained a provision that no suit to enforce such claims would
be maintainable after one year from the date of arrival of the ship at the port
of discharge. The Indian Carriage of Goods by Sea Act also provides in clause 6
of Article III of the Schedule that "the carrier and the ship shall be
discharged from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the date when the goods
should have been delivered". The High Court reversed the decision of the
trial court relying on a decision of the Calcutta High Court reported in Subal
Chandra Bhur v. Md. Ibrahim & Anr. (1) In that case S. R.
Das J., as his Lordship then was. observed at
one place in his Judgment : "Mere inaction prior to the commencement of
the legal proceedings cannot, in my opinion, be construed as want of readiness
and willingness to go to arbitration at the commencement of the legal
proceedings". The proceeding sought to be stayed in that case was a
partnership action and the observation was made in repelling a contention that
there should be no stay as none of the partners thought fit to take advantage
of the arbitration clause for a long time after the partnership came to an end.
Apparently, in this case inaction did not affect in any way the matter proposed
to be referred to arbitration. But the two suits out of which the instant
appeals arise were instituted just before the plaintiff's claim in either case
was going to be barred by time-, it is not disputed that after the lapse of one
year from the date when the goods were to be delivered, the defendants would
have been discharged from all liability in respect of any loss or damage and
there would have been no live dispute to be referred to arbitration. Where a
party to an arbitration agreement chooses to maintain silence in the face of repeated
requests by the other party to take steps for arbitration the case is not one
of "mere inaction". Failing to act when a party is called upon to do
so is a positive gesture signifying unwillingness or want of readiness to go to
arbitration. The aforesaid observation in Subal Chandra Bhurs case (surpra)
does not therefore appear to have any application on the facts of the cases before
us.
The High Court pointed out that in each of
these two suits the first defendant applied for stay under sec. 34 as shown as
they received the summons of the suit stating in the application that they were
ready and willing to have the dispute settled by arbitration. The High Court
held that the requirement of sec. 34 is satisfied if the defendant expresses
his willingness to go to arbitration at the earliest opportunity after the (1)
A.I.R. 1943 Cal. 481.
151 suit is instituted. in our opinion the
High Court was wrong in taking this view. Sec. 34 of the Arbitration Act reads
:
"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." The observation of Das J. in Subal
Chandra Bhur's case on which the High Court relied, is preceded by the
following sentence : "Further, the readiness and willingness required by
see. 34 of the Act has to exist at the commencement of the legal proceedings
and has to continue up to the date of the application for stay". In
Anderson Wright Ltd. v. Moran and Company(1), this Court enumerating the
conditions that should be fulfilled before a stay may be granted under sec.
34 notes as one of the conditions that the
applicant for stay "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". It is thus quite clear on the
authorities and from the terms of sec. 34 that the readiness and willingness
must exist not only when an application for stay is made but also at the
commencement of the legal proceedings. From the conduct of the first defendant
in either of these two suits the trial court found that they were not ready and
willing to go to arbitration at the time when the suits were instituted. This
is a finding of fact and we are afraid there was no valid ground in either case
for interference with this finding. From the letters written on behalf of the
Corporation to the agents of the first defendant in the suit giving rise to
Civil Appeal 1519 of 1974 urging them to take steps for referring the dispute
to arbitration and the evasive replies sent to these letters, the trial court
came to the conclusion that the first defendant was not ready and willing to go
to arbitration at the time when the suit was instituted. We do not think this
was an arbitrary or perverse conclusion as the High Court characterized it. In
our opinion the High Court went wrong in disregarding relevant and significant
material, namely, the correspondence that passed between the parties, as
"innocuous" and erred in disturbing the finding of fact for no valid
reason.
As regards the suit which gives rise to Civil
Appeal 1518 of 1974, the trial court repelled the contention that as the
Corporation's proposal to refer the dispute to the sole arbitration of the
Director General (1) [1955] 1 S.C.R. 862.
152 Shipping, Bombay was different from what
clause 42 of the Charter Party provided, the defendant was justified in not
replying to the telegrams or doing anything for the proper conduct of the
arbitration. The argument that the trial court rejected found favour with the
High Court. That the Corporation's proposal was a deviation from clause 42 of
the Charter-Party was hardly a valid excuse for the first defendant to remain
silent and inactive. If the first defendant were ready and willing to go to
arbitration, one would have expected them, as the trial court observed, to
reply to the telegrams saying that they were not agreeable to any departure
from the terms of clause 42 and could insist on compliance with that clause.
But they did not reply to the telegrams or do anything for reference of the
dispute to arbitration as provided in clause 42. Silence and inaction on their
part may in these circumstances very well justify the inference that they were
not ready or willing to go to arbitration. The finding of the High Court that
the trial court had exercised its discretion not judicially cannot therefore be
supported. And in this case really no question arises as to exercise of
discretion. Granting stay under sec. 34 is of course discretionary as the
section indicates but the occasion for the exercise of discretion does not
arise unless all the conditions stated in the section are fulfilled. In this
case the trial court found as a fact that the first defendant was not ready and
willing to go to arbitration when the suit was instituted and we have held that
the finding is not perverse or arbitrary; one of the requirements of the
section not having been fulfilled, sec.
34 could not be invoked in this case.
Mr. Desai for the respondent relied on
certain observations of this Court in Michael Colodetz & Ors. v. Serajuddin
and Company(1) in support of the proposition that the Court should not allow a
party to an arbitration agreement to proceed with the suit in "breach of
the solemn obligation to seek resort to the tribunal selected by him". It
is however made clear in that decision that these observations are subject to
the terms of sec. 34, one of which is that the other party to the agreement
must remain "ready and willing to do all things necessary for the proper
conduct of the arbitration". The legal position is explained in that
decision as follows "The Court ordinarily requires the parties to resort
for resolving disputes arising under a contract to the tribunal contemplated by
them at the time of the contract. That is not because the Court regards itself
bound to abdicate its jurisdiction in respect of disputes within its
cognizance, it merely seeks to promote the sanctity of contracts, and for that
purpose stays the suit. The jurisdiction of the Court to try the suit remains
undisputed : but the discretion of the court is on grounds of equity
interposed......... It is for the court, having regard to all the
circumstances, to arrive at a conclusion whether sufficient reasons are made out
for refusing to grant stay. Whether the circumstances in a given case make out
sufficient reasons for refusing to stay a suit is -essentially a question of
fact." (1) [1964] 1 S.C.R. 19.
153 For the reasons stated above we think
that the, appeals must succeed. Accordingly we allow both the appeals and set
aside the order of the High Court and restore that of the trial court in each
of these two cases. In Civil Appeal 1519 of 1974 the appellant will be entitled
to its costs in this Court and in the High Court against the contesting
respondent. In Civil Appeal 1518 of 1974, considering all aspects, we direct
the parties to bear their own costs throughout.
V. P. S. Appeals allowed.
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