Ramji Dayawala & Sons (P) Ltd. Vs.
Invest Import [1980] INSC 196 (9 October 1980)
DESAI, D.A.
DESAI, D.A.
SHINGAL, P.N.
CITATION: 1981 AIR 2085 1981 SCR (1) 899 1981
SCC (1) 80
CITATOR INFO :
R 1982 SC1302 (8) D 1988 SC 30 (5) R 1989 SC
818 (10,13)
ACT:
Arbitration Act 1940, S. 34; Code of Civil
Procedure 1908. S. 15; Arbitration (Protocol and Convention) Act 1937, S. 3;
& Foreign Awards (Recognition & Enforcement) Act,S. 3- Sub-contract
between Indian firm and foreign firm-Sub- contract incorporating an agreement
to refer disputes to a foreign arbitral tribunal-After execution of agreement
Indian firm repudiating the arbitration agreement-Suit for recovery in High
Court by Indian firm-Foreign firm contesting that suit to be stayed on account
of arbitration clause in the agreement-Single Judge and Division Bench deciding
stay of suit necessary-Decision-Whether valid-power of court to stay
suit-Exercise of discretion by trial court- Interference by appellate court.
HEADNOTE:
The appellant (plaintiff), a private limited
company, a labour contractor, entered into a sub-contract with the respondent
(defendant), a Yugoslavia based company which in turn had entered into a
contract with the State Electricity Board for setting up a power station. The
sub-contract dated July 10, 1961 between the appellant and the respondent
incorporated an agreement to refer all the disputes arising out of the
sub-contract to arbitration by the International Chamber of Commerce in Paris
with the application of Yugoslav materials and economical law. In carrying out
the work undertaken under the sub-contract the appellant claimed that it carried
out some extra work for which it was entitled to recover extra amounts from the
respondent, and as the claims were not satisfied or met with by the respondent,
the appellant filed a civil suit on the original side of the High Court for
recovery of the amount. On a notice of motion taken out by the appellant, the
High Court granted an ad interim exparte injunction restraining the respondent
from withdrawing the money due to it from the State Electricity Board.
Pursuant to service of the aforesaid notice of
motion the respondent moved an application under sec. 151 of the Code of Civil
Procedure, alleging in the petition for stay that the disputes and differences
that arose were in respect of and/or relating to the sub-contract dated July
10, 1961 and in view of the subsisting agreement to refer disputes or
differences arising under or out of the sub-contract to arbitration, the suit
filed by the appellant should be stayed. The appellant filed a
counter-affidavit contending that there was no concluded agreement between the
parties to refer all the disputes arising out of the subcontract to arbitration
and alleged that by letter dated July 10, 1961, the very dated on which the
sub-contract was entered into at Belgrade, the Managing 900 Director of the
appellant company informed the respondent that he had objected to the
arbitration clause in the agreement. It was also averred that a cable was also
sent by the Managing Director on reaching Bombay on July 13, 1961 requiring
that the clause regarding arbitration be deleted.
Second contention was that even if it is held
that there is a subsisting arbitration agreement, having regard to all the
circumstances of the case, the discretion should not be exercised in favour of
the defendant-respondent.
The Single Judge granted the petition of the
respondent and stayed further proceedings in the suit filed by the appellant,
and vacated the ad interim injunction granted in favour of the appellant.
The appellant preferred two appeals. One
against the order of the single Judge granting stay of the suit of the
appellant and the other against the order vacating the ad interim injunction. A
Division Bench of the High Court dismissed both the appeals by a common
judgment holding that there was a valid subsisting arbitration agreement
between the parties and that it was binding on both. It also held that the
claims made by the appellant in the suit arose out of the sub-contract which
included the arbitration agreement and, therefore, the appellant must be bound
by the bargain undertaken by him. It negatived the appellant's contention that
on the facts and circumstances of the case discretionary relief of grant of
stay of suit would cause irreparable hardship and deny justice.
In appeal to this Court against the order of
stay of the suit granted by the High Court, it was contended on behalf of the
appellant: (1) there was no concluded arbitration agreement between the parties
to refer the disputes arising out of the sub-contract dated July 10, 1961 to
arbitration and, therefore, the suit cannot be stayed;
(2) even if the Court came to the conclusion
that there was such a subsisting arbitration agreement between the parties,
prayer for stay having been made under section 51 of the Code of Civil
Procedure and/or under section 34 of the Arbitration Act, 1940, read with
Section 151 CPC, the Court should not enforce it in its discretionary
jurisdiction as it would result in miscarriage of justice; (3) in view of the
provisions contained in the Arbitration (Protocol and Convention) Act, 1937 the
Court could not invoke its inherent jurisdiction under section 151 CPC and the
Special Act would not assist the respondent as the case was not covered by its
provisions. It was also contended that the undermentioned circumstances when
properly evaluated would unmistakably indicate that the instant case is not a
fit case in which the Court should decline to adjudicate upon the dispute
brought to it by granting stay in favour of the respondent. (1) The work under
the special contract Ext. A dated July 10, 1961 was executed and carried out in
India and the whole of the evidence both for and against the appellant in
India,(2) the amount claimed in the suit is so disproportionately small in
relation to the huge cost of arbitration to be held at Paris in France that
forcing the appellant to incur the cost to realise such a small sum would be
denial of justice, (3) restrictions on availability of foreign exchange is a
relevant consideration, a fact of which the Court can take judicial notice, (4)
the Court should not render its assistance by granting stay to one who insists
on arbitration not as a matter of principle but with a view to thwarting,
stiffing or exhausting the other side, and (5) in all cases of arbitration by a
foreign arbitral tribunal there is always a rider that in case of hardship or injustice,
Courts of the country of the party being forced to go to foreign arbitral
tribunal will protect him.
901 On behalf of the respondent it was
contended that (1) even if the court proceeds on the assumption that the letter
and the cable were received, it is not open to the Court to look into the
contents of the letter and the cable because the contents were not proved, as
the Managing Director of the appellant company who was supposed to have signed
the letter and the cable had neither entered the witness box nor filed his
affidavit proving the contents thereof, (2) that once the sub-contract was
admittedly signed and executed by the Managing Director of the appellant
company, subsequent attempt on behalf of the appellant to repudiate a part of
the contract would be of no avail and the court cannot give effect to it except
if the novatio suggested by the appellant was unreservedly accepted and agreed
to by the respondent, and (3) when the motion is addressed to the discretion of
the court and the court has exercised its discretion, the appellate Court
should be slow to interfere with the discretionary order and substitute its own
discretion in place of the discretion of the court before which the motion was
addressed.
Allowing the appeal,
HELD: 1. Both the learned Single Judge and
the Division Bench of the High Court were in error in granting stay of the
suit. The stay of the suit granted by the learned Single Judge and affirmed by
the Division Bench is vacated. The suit should proceed further from the stage
where it was stayed. The trial court would give priority to it and dispose it
of as expeditiously as possible. [928G-H]
2. The sub-contract marked Ext. A had been
signed both by the Managing Director of the appellant company as well as on
behalf of the respondent company. The third paragraph of Article 12 of
sub-contract Ext. A recites an arbitration agreement. The provision is for a
reference of disputes arising out of the sub-contract to foreign arbitral
tribunal, namely, the International Chamber of Commerce in Paris. Such a clause
spells out an arbitration agreement.
[908E-F]
3. (i) The Appellate Bench of the High Court
held that the letter and the cable were not received by the respondent. This
conclusion is not only contrary to evidence on record but reached in utter
disregard of the admission of the Manager of the respondent. [910A-B] (ii) The
letter and the cable would show that the arbitration agreement to refer
disputes to a foreign arbitral tribunal in the draft was not acceptable to the
appellant though the other terms were acceptable. The appellant repudiated the
arbitration agreement soon after the agreement was signed when the Managing
Director of the appellant was in Belgrade and took the follow up action by
sending a cable reiterating and repeating the objection immediately after his
return to India. After this specific objection with regard to arbitration
agreement in the sub- contract, the respondent allowed the appellant to proceed
further with the implementation and execution of the sub- contract, without
controverting what the appellant had stated in the letter and the cable. This
unmistakably shows that the respondent accepted the alteration as suggested by
the appellant in that the arbitration agreement was deemed to have been deleted
from the sub-contract Ext A. [910H;
911A-D]
4. If the truth of the facts stated in a
document is in issue, mere proof of the handwriting and execution of the
document would not furnish evidence of the truth of the facts or contents of
the document. The truth or otherwise 902 of the facts or contents so stated
would have to be proved by admissible evidence i.e. by the evidence of those
persons who can vouchsafe for the truth of the facts in issue.
[912B-C] In the instant case the utter
failure of the respondent to reply to the letter and the cable controverting
the averments made therein unmistakably establish the truth of the averments
made in the letter. [912E]
5. In the facts of a given case acceptance of
a suggestion may be sub silentio reinforced by the subsequent conduct. The
general rule is that an offer is not accepted by mere silence on the part of
the offeree. There may, however, be further facts which taken together with the
offeree's silence constitute an acceptance. One such case is where a part of
the offer was disputed at the negotiation stage and the original offeree
communicated that fact to the offerer showing that he understood the offer in a
particular sense. This communication will probably amount to a counter offer in
which case it may be that mere silence of the original offerer will constitute
his acceptance. [912G-H] In the instant case, the conclusion is inescapable
that there was no concluded arbitration agreement between the parties. [914E]
Halsburys Laws of England 4th Edn. vol. 9 para 251, R. v. Fulhan, Hammersmith
and Kensington Rent Tribunal, ex parte Zerek, [1951] 1 All E. R. 482, Davies v.
Sweet (1962) 2 W.L.R. 525, referred to.
6.(i) The High Court totally overlooked and
ignored the admission of receipt of letter and cable in paragraph 6 of the
affidavit. The High Court attached importance to the denial of the receipt of
the letter and the cable by the employee of the respondent company in the oral
evidence and did not attach importance to the subsequent admission that the
manager of respondent company must have replied to the letter and the cable.
Admission, unless explained, furnishes the best evidence. The High Court
overlooked the material evidence, drew impermissible inference and came to the
conclusion which on evidence is found utterly unsustainable.
[914G-H] (ii) A finding of fact recorded by
the High Court overlooking the incontrovertible evidence which points to the
contrary and, therefore, utterly unsustainable cannot come in the way of this
Court reaching a correct conclusion on facts and the examination of the
evidence by this Court cannot be impeded by a mere submission that this Court
does not interfere with finding of fact. [915A]
7. (i) Both the Courts practically overlooked
the basic difference in the approach which the Court will have to adopt if the
application is to be treated under section 34 of the Arbitration Act, 1940, or
one under section 151 C.P.C. In any event, as the motion is at the discretion
of the Court and as both the parties have led evidence, the burden of proof
would assume secondary importance. [916F] Michael Golodetz & Ors. v.
Serajuddin and Co. [1964] 1 S.C.R. 19, referred to.
(ii) It is well settled that where the trial
court has a discretion in the matter, the appellate court would not ordinarily
substitute its discretion in place of the discretion exercised by the trial
court. It is equally well settled that where the trial court ignoring the
relevant evidence, side tracking the 903 approach to be adopted in the matter
and overlooking various relevant considerations, has exercised its discretion
one way, the appellate court keeping in view the fundamental principle can and
ought to interfere because when it is said that a matter is within the
discretion of the court it is to be exercised according to well established
judicial principles, according to reason and fair play, and not according to
whim and caprice. [917B-C] Craies Statute Law 6th Edn. p. 273 R. v. Wilkes
(770) 4 Barr 2527, referred to.
8. The Single Judge and the Division Bench
completely overlooked the well established principles in granting stay of suit
in a case where reliance is placed upon a subsisting arbitration agreement.
[917D]
9. When parties by contract agree to arrange
for settlement of their disputes by a Judge of their choice, by procedure of
arbitration voluntarily agreed upon, ordinarily the court must hold the parties
to their bargain. As a corollary, if a party to a subsisting arbitration
agreement in breach or violation of the agreement to refer dispute to
arbitration approaches the Court, the Court would not lend its assistance to
such a party and by staying the suit compel the party in breach to abide by its
contract. When the parties have agreed to an arbitration by a foreign arbitral
tribunal the case for stay would be stronger than if there was a domestic
arbitration agreement. However, it is not an absolute rule. Granting or
refusing to grant stay is still a matter within the discretion of the court.
How discretion would be exercised in a given case would depend upon various
circumstances. [918D-F] Bristol Corporation v. John Aird & Co. [1913] A.C.
241 at 257 and Owners of Cargo Ex "Athenee" v. Athenee Llyods' List
Law Reports, Easter Sittings 1922, Vol. XI, page 6, referred to.
In the instant case the entire evidence both
of the appellant and the respondent is in this country; the contract as a whole
was executed and carried out in this country; the claim as a whole arose in this
country; the appellant is a company incorporated in this country; and the
respondent is having its office in this country; and that the respondent is not
motivated by any principle to have the decision of the foreign arbitral
tribunal at Paris but the principal object of respondent is merely to make it
more difficult, if not impossible, for the appellant to assert the claim. The
other vital considerations are, that the cost of arbitration at Paris will be
so disproportionately high to the claim involved in adjudication that one would
never think of incurring such a huge cost to realise such a small sum claimed,
and the restriction on the availability of foreign exchange. The sum total of
all these well established circumstances clearly indicate that the instant suit
is one in which when discretion is exercised on well settled judicial
considerations no court would grant stay and the stay has to be refused.
[925B-D] Michael Golodetz & Ors. v. Serajuddin & Co. [1964] 1 S.C.R.
19, Bristol Corporation v. John Aird & Co. [1913] A.C. 241 at 257, Owners
of Cargo Ex "Athenee" v. Athenee Llyods' List Law Reports, Easter
Sittings 1922, Vol. XI, page 6, V/o Tractoroexport, Moscow v. M/s. Tarapore
& Company and Anr. [1970] 3 S.C.R. 53 and The Fehmarn [1957] 2 All E.R.
707, referred to.
10. Section 3 of the Arbitration (Protocol
and Convention) Act, 1937 is in pari materia with section 3 of the Foreign
Awards (Recognition and Enforcement) Act, 1961.
Section 3 of the 1937 Act would only be
attracted if there is a submission pursuant to an agreement to that effect.
[928B-C] 904 In the instant case while there
is an agreement as contemplated by First Schedule to the 1937 Act, there is no
submission made in pursuance of such agreement and, therefore the application
of the respondent could not have been entertained under section 3 of the 1937
Act. [928D]
CIVIL APPELLATE JURISDICTION : Civil Appeal
Nos. 2407- 2408 of 1968.
From the Judgment and Order dated 1-12-1965
of the Calcutta High Court in Appeal Nos. 110-111/64 P. K. Chatterjee and P. K.
Mukherjee for the Appellant.
S. C. Majumdar, Arvind Kumar, S. Dasgupta,
Mrs. L. Arvind and Miss Karabi Banerji for the Respondent.
The Judgment of the Court was delivered by
DESAI, J.-Protracted, time consuming, exasperating and atrociously expensive
court trials impelled an alternative mode of resolution of disputes between the
parties:
arbitrate-don't litigate. Arbitration being a
mode of resolution of disputes by a judge of the choice of the parties was
considered preferable to adjudication of disputes by court. If expeditious,
less expense resolution of disputes by a judge of the choice of the parties was
the consummation devoutly to be wished through arbitration, experience shows
and this case illustrates that the hope is wholly belied because in the words
of Edmond Davis, J. in Price v. Milner, these may be disastrous proceedings.
A petty labour contractor in search of its
labour charges in a paltry amount of Rs. 4,25,343.00 from a giant foreign
engineering and construction company which had undertaken to erect a thermal
power station at Barauni in Bihar State under a contract dated February 27,
1960, with Bihar State Electricity Board, filed a suit in the year 1963 which
stands stayed without the slightest progress for the last 17 years and with end
nowhere in sight. Plaintiff (appellant herein), a private limited company, a
labour contractor, entered into a sub-contract for erecting two complete
radiation type steam boilers as part of Thermal power station at Barauni, with
the defendant Invest-Import, a Yugoslavia based company which in turn had
entered into a contract with the Bihar State Electricity Board for setting up
the power station. Plaintiff sub-contractor, pursuant to the sub-contract dated
July 10, 1961, had to supply skilled labour, unskilled labour and apprentice
labour, to carry out the erection work and incidentally to do other things
provided in the sub-contract.
905 The contract also provided for employing
extra labour force as well as carrying out extra stipulated job for
installation, substantial alteration of design etc. as and when desired and
directed by the principal contractor, respondent herein. In carrying out the
work undertaken under the sub-contract, the plaintiff claims that it carried
out some extra work for which it was entitled to recover Rs. 70,000 from the
respondent. There were also other claims made by the appellant which were not
satisfied or met with by the respondent with the result that the appellant
filed suit No. 1359/63 on the original side of the High Court at Calcutta on
August 1, 1963, to recover Rs. 4,25,343.00 from the respondent. The split up of
the total claim has been set out in the particulars appended to para 16 of the
plaint.
The appellant also annexed sub-contract
between the appellant and the respondent as Annexure 'A' to the plaint.
On August 2, 1963, on a notice of motion
taken out by the appellant, a learned single judge of the High Court granted an
ad interim ex parte injunction restraining the respondent from withdrawing the
money due to it from the Bihar State Electricity Board.
Pursuant to service of notice of motion taken
out by the appellant, on August 8, 1963, the respondent appeared through one
Ilija Kostantinovic, Manager of the respondent company posted at its office at
36, Ganesh Chandra Avenue, Calcutta, and moved an application purporting to be
under s.
151 of the Code of Civil Procedure,
contending, inter alia, that the sub-contract between the appellant and the
respondent incorporates an agreement to refer all the disputes arising out of
the sub-contract to arbitration and, therefore, the suit should be stayed. The
clause spelling out agreement to refer disputes to arbitration was reproduced
in the petition. It reads as under:
"Any mutual disputes should be settled
in mutual agreement, however, should they fail to reach an agreement in the
way, both contracting parties accept the jurisdiction of the Arbitration by the
International Chamber of Commerce in Paris with application of Yogoslav
materials and economical law".
After setting out the background of disputes
between the parties, it was alleged in the petition for stay that in the
circumstances set out in the petition, disputes and differences arose between
the appellant and the respondent out of or in respect of and/or relating to the
sub-contract dated July 10, 1961, and in view of the subsisting agreement to refer
disputes or differences arising under or out of the sub-contract between the
parties to arbitration, the suit filed by the appellant should be stayed. It
was also averred that if the provisions of Arbitration Act did not apply the
Court should in 906 exercise of its inherent jurisdiction injunct the plaintiff
appellant from proceeding with the suit instituted by it.
There were further averments praying for
vacating ad interim injunction granted by the High Court which are no more
relevant. The respondent annexed to the petition for stay the sub-contract
between the parties dated July 10, 1961, as also some correspondence that had
ensued between the parties.
Appellant filed a counter affidavit sworn by
one Bhikhubhai Gourishankar Joshi who described himself as principal officer
and constituted attorney of the appellant company controverting the averments
made by the respondent in the petition seeking stay of the suit. The principal contention
taken in the counter affidavit was that there was no concluded agreement
between the parties to refer all the disputes arising out of the sub-contract
to arbitration as contended for and on behalf of the respondent. To
substantiate this contention letter dated July 10, 1961, the very date on which
the sub-contract was entered into between the appellant and the respondent,
sent by the Managing Director of the appellant company as also a telegram sent
by the same person on July 13, 1961, were annexed to the counter-affidavit.
Ilija Kostantinovic, Manager of the
respondent company at Calcutta filed an affidavit in rejoinder in which there
are certain averments which go to the root of the matter and, therefore, they
may better be extracted here. They read as under:
"5. With reference to the allegations
contained in paragraph 4 of the said affidavit, I reiterate the statements
contained in paragraphs 3 and 4 of the petition and I deny all allegations,
which are contrary thereto and/or inconsistent therewith.
6. With further reference to the allegations
contained in paragraph 4 of the said affidavit, I say that after entering into
the contract dated July 10, 1961, and after executing the same, the respondent
purported to send a letter to the petitioner seeking to modify and/or delete
the arbitration clause contained in the contract dated July 10, 1961, and also
purported to send a cable to the petitioner. The petitioner never agreed to the
modification and/or deletion of the arbitration clause as contained in the said
contract or to the alleged arbitration clause suggested by the
respondent".
The petition for stay was set down for
recording evidence. One Panich Stojan son of Nikola Panich, Project Manager,
Barauni Thermal Project, an employee of the respondent company was examined on
behalf of the respondent.
No. oral evidence was offered 907 on behalf
of the appellant. The learned single judge by his order dated January 10, 1964,
granted the petition of the respondent and stayed further proceedings in the
suit filed by the appellant. The learned judge also vacated the ad interim
injunction granted in favour of the appellant.
The appellant preferred two appeals being
Civil Appeal No. 110/64 against the order of the learned single judge granting
stay of the suit of the appellant and Civil Appeal No. 111/64 against the order
dated February 6, 1964, vacating the interim injunction granted in favour of
the appellant. A Division Bench of the High Court disposed of both the appeals
by a common judgment dated December 1, 1965, dismissing both the appeals. While
dismissing the appeals the division bench held that there was a valid
subsisting arbitration agreement between the parties and it was binding on both
the parties. It was also held that the claims made by the appellant in the suit
arose out of the sub-contract which included arbitration agreement and,
therefore, the plaintiff must be bound by the bargain undertaken by him. The
contention of the appellant that even if there was a subsisting arbitration
agreement, in the facts and circumstances of the case discretionary relief of
granting stay of suit would cause irreparable hardship and deny justice to the
appellant was negatived.
Appellant then moved an application for a
certificate under 7 Article 133(1)(c) of the Constitution. The High Court was
of the opinion that the appeals did involve substantial questions of law and
the case was a fit one for appeal to the Supreme Court and accordingly granted
a certificate under Art. 133(1)(c). Appellant accordingly preferred these two
appeals by certificate.
At the commencement of hearing of the appeals
Mr. P. K. Chatterjee, learned counsel who appeared for the appellant stated
that by passage of time the prayer for injunction restraining the respondent
from recovering its claim from Bihar State Electricity Board had become
infructuous and accordingly Civil Appeal No. 2408/68 which was against the
order vacating ad interim injunction granted by the High Court and the
dismissal of the appeal against that order was not pressed. Therefore, Civil
Appeal No. 2408/68 would stand dismissed as having not been pressed.
Mr. Chatterjee in support of Civil Appeal No.
2407/68 canvassed four contentions before us. They are:
1. There is no concluded arbitration
agreement between the parties to refer the disputes arising out of the
sub-contract dated July 10, 1961, to arbitration and, therefore, the suit
cannot be stayed;
908
2. Alternatively, even if the Court comes to
the conclusion that there is such a subsisting arbitration agreement between
the parties, prayer for stay having been made under s. 151 of the Code of Civil
Procedure and/or under s. 34 of the Arbitration Act, 1940, read with s. 151,
C.P.C., the Court should not enforce it in its discretionary jurisdiction in
the facts and circumstances of the case as it would result in miscarriage of
justice;
3. In view of the provisions contained in Arbitration
(Protocol and Convention) Act, 1937, the Court could not invoke its inherent
jurisdiction under s. 151, C.P.C. and the special Act would not assist the
respondent because the present case is not covered by the provisions of the
Act;
4. This being a foreign arbitration, s. 34 of
the Arbitration Act, 1940, is not attracted and the Court would have no jurisdiction
to grant stay of the suit filed by the appellant.
The first contention is that there is no
concluded arbitration agreement between the parties to refer the disputes
arising out of the sub-contract dated July 10, 1961, to arbitration and in the absence
of a mutually agreed arbitration agreement, the respondent is not entitled to a
stay of the suit filed by the appellant either under s. 34 of the Arbitration
Act or under s. 34 read with s. 151 of the Code of Civil Procedure.
Undoubtedly, sub-contract marked Ext. A has been signed both by the Managing
Director of the appellant company and by one Mr. Petrovije on behalf of the
respondent company. Third paragraph of Art. 12 of sub-contract Ext. A recites
an arbitration agreement. The provision is for a reference of disputes arising
out of the sub-contract to foreign arbitral tribunal, namely, the International
Chamber of Commerce in Paris. Such a clause has always been interpreted to spell
out an arbitration agreement. Respondent contends that admittedly the Managing
Director of the appellant company has signed sub-contract Ext. A which
incorporates arbitration agreement and the appellant accepted the same and
entered upon the work entrusted to it under Ext. A and, therefore, it is not
now open to it to repudiate a part of the contract which provides for reference
of disputes arising out of the sub- contract to arbitration of a foreign
arbitral tribunal.
Appellant countered by saying that the
appellant accepted the principal contract but not the agreement to refer the
dispute to foreign arbitral tribunal and that there are tell-tale circumstances
on record which would convincingly establish that the parties were not ad idem
with regard to arbitration clause in Ext. A.
To recall, sub-contract Ext. A was signed by
the parties in Belgrade on July 10, 1961. Managing Director of the appellant
was in Belgrade on that day. On that very day Managing Director sent a letter
from Belgrade itself addressed to the respondent at Belgrade, relevant portion
of which may be extracted:
"10th July 1961 "I have signed the
contract of Barauni Thermal Power Station work with you.
I have objected to the clause of Arbitration
put in there in agreement which was deleted from our revised draft of agreement
sent to you in advance.
Arbitration clause will be acceptable to us
if only arbitration to be done in India, according to the rules and regulations
and procedure of our country".
This letter was handed in to the respondent
on the same day on which Ext. A was signed and accepted by the parties and it
would imply that it must be soon after the signing ceremony was over. Further,
the Managing Director of the appellant immediately on landing in Bombay on July
13, 1961, sent a cable to the respondent which reads as under:
"Reached safely Bombay (stop) Reference
to our letter of 10th July 1961 regarding Arbitration clause to be deleted from
the contract document".
Three things emerge from a conjoint reading
of the letter and the cable that before sub-contract Ext. A was signed by the
parties at Belgrade, a draft of the intended sub- contract was sent by the
respondent to the appellant for its approval and the Managing Director of the
appellant had raised a limited objection to the arbitration clause. On behalf
of the appellant it was suggested that there would be no objection to the
arbitration clause if arbitration was to be done in India. But as the original
draft submitted on behalf of the respondent suggested arbitration by a foreign
arbitral tribunal stationed in Paris, the same was objected to on behalf of the
appellant and its amendment was sought.
Undoubtedly, Managing Director of appellant
signed Ext. A which incorporated the arbitration agreement as extracted
herein-before. But the letter referred to herein was handed in presumably soon
after the signing ceremony of subcontract Ext. A was over and was followed by
the cable which not only referred to letter dated July 10, 1961, but also
reiterated and repeated the objection to the arbitration clause.
910 At one stage of the proceeding the
respondent adopted a position that neither the letter nor the cable were
received by it and they are not genuine documents. The appellate Bench of the
High Court held that the letter and the cable were not received by the
respondent. This conclusion is not only contrary to evidence on record but is
reached in utter disregard of the admission of the Manager of the respondent.
Ilija Kostantinovic, Manager of the respondent
company stationed at Calcutta filed an affidavit in rejoinder. The admissions
are spelt out in paragraphs 5 and 6 of the affidavit which are extracted
hereinabove. In para 6 it is in terms admitted that the appellant purported to
send a letter to the respondent seeking to modify and/or delete the arbitration
clause contained in the contract dated July 10, 1961. and also purported to
send a telegram to the respondent. He further proceeded to state that the
respondent never agreed to the modification and/or deletion of the arbitration
clause. This unambiguous admission unmistakably shows that the letter and the
cable were received by the respondent. Of course, again at a later stage when
Panich Stojan, Project Manager of the respondent entered the witness box to
give evidence in support of the application for stay he was asked at Question
No. 13 whether he had any knowledge about the letter sent by the appellant on
July 10, 1961, relating to the arbitration clause contained in the agreement.
The answer was that the deponent had not received any letter in his department.
To question No. 16 about the cable, the answer was that the respondent had not
received any cable also. In cross-examination when he was confronted with the
averments in paragraph 6 of the affidavit of Ilija Kostantinovic, a nebulous
answer was given that Mr. Kostantinovic must have replied to the letter and the
telegram. And he admitted that Mr. Kostantinovic was the Manager of the branch
office of the respondent company at Calcutta. Now, one employee, viz., the
Manager of the respondent company stationed at Calcutta in terms admitted the
receipt of the letter and the cable while the witness who claimed to be present
at the signing ceremony of the sub-contract Ext. A was emphatic that the cable and
the letter were not received and gave an explanation with regard to the
averments of the affidavit which only show that truth was otherwise. In the
face of uncontroverted and unambiguous admission in the affidavit of the
Manager of the respondent company one can without fear of contradiction assert
that the letter and the cable were received by the respondent.
The letter and the cable would show that the
arbitration agreement to refer disputes to a foreign arbitral in the draft was
not acceptable to the appellant though the other terms were acceptable. The
appellant repudiated the arbitration agreement soon after the agreement was
signed when the Managing 911 Director of the appellant was in Belgrade and took
the follow up action by sending a cable reiterating and repeating the objection
immediately after his return to India.
Now, once it is admitted and established that
the letter and the cable were received by the respondent, ordinarily if the
contents of the letter and cable are not acceptable to respondent, a reply to
that effect is naturally expected. Contention is that respondent accepted the
change in arbitration clause proposed by the appellant sub silentio coupled
with the subsequent conduct. It is a fact that the respondent did not write
back saying that if the arbitration agreement was not acceptable to the
appellant the sub-contract would not be acceptable as a whole to the
respondent. On the contrary, after a specific objection only with regard to
arbitration agreement in the sub-contract Ext. A by the appellant, the
respondent allowed the appellant to proceed further with the implementation and
execution of the subcontract, without controverting what the appellant had
stated in the letter and the cable. This would unmistakably show that the respondent
accepted the alteration as suggested by the appellant in that the arbitration
agreement was deemed to have been deleted from the subcontract Ext. A. Add to
this the circumstance that a petty labour contractor could not have been
expected to or was not likely to agree to arbitration by a foreign arbitral
tribunal stationed in Paris because it would be beyond its reach to seek relief
by arbitration in a foreign country.
Incidentally it was urged by Mr. Majumdar
that even if the court proceeds on the assumption that the letter and the cable
were received, it is not open to this Court to look into the contents of the
letter and the cable because the contents are not proved as the Managing
Director of the appellant company who is supposed to have signed the letter and
the cable has neither entered the witness box nor filed his affidavit proving
the contents thereof. Reliance was placed on Judah v. Isolyne Bose. In that
case a letter and two telegrams were tendered in evidence and it was observed
that the contents of the letter and the telegram were not the evidence of the
facts stated therein. The question in that case was whether the testatrix was
so seriously ill as would result in impairment of her testamentary capacity. To
substantiate the degree of illness, a letter and two telegrams written by a
nurse were tendered in evidence. The question was whether in the absence of any
independent evidence about the testamentary capacity of the testatrix the
contents of the letter could be utilised to prove want of testamentary
capacity.
912 Obviously, in these circumstances the
Privy Council observed that the fact that a letter and two telegrams were sent
by itself would not prove the truth of the contents of the letter and,
therefore, the contents of the letter bearing on the question of lack of
testamentary capacity would not be substantive evidence. Undoubtedly, mere
proof of the handwriting of a document would not tantamount to proof of all the
contents or the facts stated in the document. If the truth of the facts stated
in a document is in issue mere proof of the handwriting and execution of the
document would not furnish evidence of the truth of the facts or contents of
the document. The truth or otherwise of the facts or contents so stated would
have to be proved by admissible evidence, i.e. by the evidence of those persons
who can vouch safe for the truth of the facts in issue. But in this case
Bhikhubhai Gourishankar Joshi who filed an affidavit on behalf of the appellant
has referred to the averments in the letter and the cable. He is a principal
officer and constituted attorney of the appellant company. Once the receipt of
the letter and the cable are admitted or proved coupled with the fact that even
after the dispute arose and before the suit was filed, in the correspondence
that ensued between the parties, the respondent did not make any overt or
covert reference to the arbitration agreement and utter failure of the
respondent to reply to the letter and the cable controverting the averments
made therein would unmistakably establish the truth of the averments made in
the letter. What is the effect of averments is a different question altogether
but the averments contained in the letter and the cable are satisfactorily
proved.
It was, however, contended that once
sub-contract Ext. A was admittedly signed and executed by the Managing Director
of the appellant company, subsequent attempt on behalf of the appellant to
repudiate a part of the contract would be of no avail and the court cannot give
effect to it except if the novatio suggested by the appellant is unreservedly
accepted and agreed to by the respondent. In the facts of a given case
acceptance of a suggestion may be silentio reinforced by the subsequent
conduct. True it is that the general rule is that an offer is not accepted by
mere silence on the part of the offeree. There may, however, be further facts
which taken together with the offeree's silence constitute an acceptance. One
such case is where a part of the offer was disputed at the negotiation stage
and the original offeree communicated that fact to the offerer showing that he
understood the offer in a particular sense.
This communication will probably amount to a
counter offer in which case it may be that mere silence of the original offerer
will constitute his acceptance (see Halsbury's Laws of England, 4th Edn., 913
Vol. 9, para 251). Where there is a mistake as to terms of a document as in
this case, amendment to the draft was suggested and a counter offer was made,
the signatory to the original contract is not estopped by his signature from
denying that he intended to make an offer in the terms set out in the document;
to wit, the letter and the cable (Ibid.
para 295). It can, therefore, be stated that
where the contract is in a number of parts it is essential to the validity of
the contract that the contracting party should either have assented to or taken
to have assented to the same thing in the same sense or as it is sometimes put,
there should be consensus ad idem. And from this it follows that a party may be
taken to have assented if he has so conducted himself as to be estopped from
denying that he has so assented (Ibid, para 288). Even apart from this, it
would still be open to the party contending novatio to prove that he had not
accepted a part of the original agreement though it has signed the agreement
containing that part. It would in this connection be advantageous to refer to
R. v. Fulhan, Hammersmith and Kensington Rent Tribunal, ex parte Zerek, wherein
an oral agreement was entered into between the landlord and a tenant for lease
of unfurnished premises at weekly rent of 35s. The landlord subsequently
refused to grant the tenant possession unless he agreed to hire his furniture
to the landlord for one year at a rental of & 12 and to execute a document
certifying, inter alia, that the letting was a furnished letting at a rent of
35s A week.
The tenant signed the document and entered
into possession.
Later the tenant applied to a rent tribunal
to fix a reasonable rent for the premises as an unfurnished dwelling house
under the Landlord and Tenant (Rent Control) Act, 1949. The tribunal accepted
the tenant's evidence that the premises were originally let unfurnished and
came to the conclusion that the document signed by the tenant did not
constitute a valid agreement and did not modify or replace the earlier oral
agreement and that the premises were not bona fide let furnished. The tribunal
reduced the rent to 15s. a week. On an application by the landlord for an order
of certiorary, motion for certiorary was refused and in so doing the subsequent
written agreement was ignored and the previous oral agreement was accepted as
genuine and binding.
It would, therefore, be inappropriate to say
that because the appellant has signed the sub-contract, every part of it is
accepted by him even though there is convincing evidence pointing to the
contrary. It was, however, said that a subsequent negotiation 914 or a
repudiation of part of the contract cannot in any manner affect the concluded
agreement. Reliance was placed on Davies v. Sweet the pertinent observation at
p. 529 being as under:
"If there was originally a concluded
bargain between the parties, this could only be got rid of by either (a) a
mutual agreement to call off the sale, or (b) an agreement for a variation of
the terms of the original contract. The mere fact that there have been
negotiations which prove to be abortive and do not result in an enforceable
agreement does not destroy the original contract: see Perry v. Suffields Ltd.
(1916) 2 Ch. 187. C.A." If on the evidence in this case it can be held
that the sub- contract Ext. A was concluded contract in respect of all clauses
of it including the arbitration agreement, a subsequent repudiation of a part
of it by a party to the contract cannot affect the concluded agreement. But as
clearly pointed out hereinbefore an amendment was suggested to the draft of the
intended contract and immediately after the signing ceremony a letter pointing
out that part in respect of which amendment was sought and not carried out was
not acceptable and it was followed by a cable it would indicate that the
parties were not consensus ad idem with regard to a severable portion of
contract and there was thus lack of mutuality on the question of arbitration
agreement.
Therefore, the conclusion is inescapable that
there was no concluded arbitration agreement between the parties. The High
Court rejected the contention of the appellant holding that when the Managing
Director of the appellant signed the contract at Belgrade on July 10, 1961, the
sub-contract contained the arbitration agreement and his signature was only
less than half an inch away from the arbitration clause and that he has not
entered the witness box and offered himself for cross-examination and that the
respondent's contention that the letter and the cable were not received
appeared to be acceptable. The High Court totally overlooked and ignored the
admission of receipt of letter and cable in paragraph 6 of the affidavit of
Ilija Kostantinovic. The High Court attached importance to the denial of the
receipt of the letter and the cable by Mr. Panich Stojan in his oral evidence
and did not attach importance to his subsequent admission that Mr. utterly
unsustainable. A finding of fact recorded by the High Court overlooking the
incontrovertible evidence which points to the contrary and, therefore, utterly
unsustainable cannot come in the way of this Court reaching a correct
conclusion on facts and the examination of the evidence by this Court cannot be
impeded by mere submission that this Court does not interfere with finding of
fact.
Assuming we are not right in reaching the
conclusion that there was no concluded arbitration agreement between the
parties and that the concurrent finding of fact recorded by the learned single
judge and the division bench of the High Court in Letters Patent Appeal are
binding on us, we may now examine the contention of law whether in the facts
and circumstances of this case the High Court was right in exercising its
discretion in favour of the respondent by granting stay of the suit filed by
the appellant.
If the application for stay filed by the
respondent purported to be under s. 34 of the Arbitration Act, by a catena of
decisions it is well settled that granting of stay of the suit is within the
discretion of the Court. The expression 'such authority may make an order
staying the proceedings' clearly indicates that the Court has a discretion
whether to grant the stay and thereby compel the parties to abide by the
contract or the Court may refuse to lend its assistance by undertaking to
adjudicate the dispute by refusing the stay. If the application is under s.
151, C.P.C., undoubtedly the Court will still have discretion in exercise of
its inherent jurisdiction to grant stay of the suit or refuse the same but the
approach of the Court would be different. If s. 34 of the Arbitration Act, 1940,
is attracted, ordinarily the approach of the Court would be to see that people
are held to their bargain. Therefore, the party who in breach of arbitration
agreement institutes an action before the Court, the burden would be on such
party to prove why the stay should be refused. On the other hand, if the
application is under s. 151, C.P.C., invoking inherent jurisdiction of the
Court to grant stay, the burden will be on the party seeking stay to establish
facts for exercise of discretion in favour of such party. In the present case
respondent who moved an application for stay of suit instituted by the
appellant founded its request for stay on shifting sands in that at one stage
it was stated that the application was under s. 34 of the Arbitration Act, at
other stage it was stated that it was under s. 151, C.P.C., and before us it
was stated that it is under s. 3 of the Arbitration (Protocol and Convention)
Act, 1937, or under the Foreign Awards (Recognition and Enforcement) Act, 1961.
In the notice of motion taken out for stay of the suit by the respondent 916 it
was stated that the application purports to be under s. 151, C.P.C. There is no
reference to s. 34 of the Arbitration Act, 1940, in the body of the petition or
in the affidavit annexed to the petition. On the contrary, it was stated in
para 16 of the petition that if Arbitration Act, 1940 does not apply to the
arbitration agreement relied upon by the respondent, the Court may in exercise
of its inherent jurisdiction restrain the appellant from proceeding with the
suit. Learned single judge appears to have treated the application to be under
s. 34 of the Arbitration Act, because in the last paragraph of his order he has
stated that the Arbitration Act applies even if the arbitration agreement
provides for reference to a foreign arbitral tribunal. So saying, stay was
granted which would imply that the learned judge treated the application to be
one under s. 34 of the Arbitration Act. While dealing with the contention of
the appellant that in view of the fact that arbitration agreement refers to
arbitration by a foreign arbitral tribunal, Arbitration Act, 1940, is not attracted,
the Division Bench has assumed as was done in Michael Golodetz & Ors. v.
Serajuddin & Co., that the Arbitration Act, 1940, invests in Court in India
with authority to stay a legal proceeding commenced by a party to an agreement
against any other party thereto in respect of any matter agreed to be
referred,, even when the agreement is to submit it to a foreign arbitral
tribunal. It further. however, held that even if s. 34 is not attracted, the
Court can in exercise of the inherent jurisdiction for doing justice between
the parties, stay further proceeding of the suit which would imply that the
Court exercised its jurisdiction under s. 151, C.P.C. Both the Courts
practically overlooked the basic difference in the approach which the Court
will have to adopt if the application is to be treated under s. 34 of the Arbitration
Act, 1940, or one under s. 151, C.P.C. In any event, as the motion is at the
discretion of the Court and as both the parties have led evidence, the burden
of proof would assume secondary importance.
The important question is whether the Court
was justified in the facts and circumstances of the case in exercising its
discretion in favour of the respondent.
Before examining this aspect, a minor
contention raised by Mr. Majumdar that when the motion is addressed to the
discretion of the Court and the Court has exercised its discretion one way, the
appellate Court should be slow to interfere with the discretionary order and
substitute its own discretion in place of the discretion of the Court before
which the motion was addressed and as in this case both the learned single
judge and the 917 appellate bench have exercised the discretion in favour of
the respondent, in exercise of its extra-ordinary jurisdiction this Court
should not interfere with the same, may be disposed of. It is well settled that
where the trial court has a discretion in the matter, the appellate court would
not ordinarily substitute its discretion in place of the discretion exercised
by the trial court. But it is equally well settled that where the trial court
ignoring the relevant evidence, side tracking the approach to be adopted in the
matter and overlooking various relevant considerations, has exercised its
discretion one way, the appellate court keeping in view the fundamental
principle can and ought to interfere because when it is said that a matter is
within the discretion of the court it is to be exercised according to well
established judicial principles, according to reason and fairplay, and not
according to him and caprice. 'Discretion', said Lord Mansfield in R. v. Wilkes,
'when applied to a court of justice, means sound discretion guided by law. It
must be governed by rule, not by humour; it must not be arbitrary, vague, and
fanciful, but legal and regular' (see Craies on Statute Law, 6th End., p. 273).
In the course of this judgment we would be constrained to point out that both
the learned single judge and the judges of the Division Bench completely
overlooked the well established principles in granting stay of suit in a case
where reliance is placed upon a subsisting arbitration agreement.
Mr. Chatterjee, learned counsel for the
appellant deduced the following circumstances from the evidence on record
which, when properly evaluated, would unmistakably indicate that this is not a
fit case in which the Court should decline to adjudicate upon the dispute
brought before it by granting stay in favour of the respondent:
(i) The entire main contract including the
work of erecting the boilers entrusted to the appellant under the sub-contract
Ext. A, dated July 10, 1961, was executed and carried out in India and the
whole of the evidence both for and against the appellant is in India;
(ii) The amount claimed in the suit is so
disproportionately small in relation to the huge cost of arbitration to be held
at Paris in France that forcing the appellant to incur the costs to realise a
small sum would be denial of justice;
(iii)Restrictions on availability of foreign
exchange is a relevant consideration, a fact of which Court can take judicial
notice;
(iv) The Court should not lend its assistance
by granting the stay to one who insists on arbitration not as a matter of 918
principle but with a view to thwarting, stiffing or exhausting the other side;
(v) In all cases of arbitration by a foreign
arbitral tribunal there is always a rider that in case of hardship or injustice
Courts of the country of the party being forced to go to foreign arbitral
tribunal will protect him.
We would analyse and examine each one of the
circumstances hereinabove extracted separately and evaluate their cumulative
impact on exercise of the judicial discretion one way or the other. While so
doing the observations of the learned single judge and learned judges of the
Division Bench in granting stay of suit must receive serious consideration.
When parties by contract agree to arrange for
settlement of their disputes by a judge of their choice, by procedure of
arbitration voluntarily agreed upon, ordinarily the Court must hold the parties
to their bargain. As a corollary, if a party to a subsisting arbitration
agreement in breach or violation of the agreement to refer dispute to
arbitration approaches the Court, the Court would not lend its assistance to
such a party and by staying the suit compel the party in breach to abide by its
contract. When the parties have agreed to an arbitration by a foreign arbitral tribunal
the case for stay would be stronger than if there was a domestic arbitration
agreement. This proceeds on the assumption that parties not only sought and
agreed upon the forum for resolution of dispute but also the law according to
which the dispute would be resolved. However, this is not an absolute rule.
Granting or refusing to grant stay is still a matter within the discretion of
the Court.
How discretion would be exercised in a given
case would depend upon various circumstances. But to grant stay of the suit is
still a matter within the discretion of the Court.
In Bristol Corporation v. John Aird &
Co., Moulton, L.J. observed as under:
"But, my Lords, it must be remembered
that these arbitration clauses must be taken to have been inserted with due
regard to the existing law of the land, and the law of the land as applicable
to them is, as I have said, that it does not prevent the parties coming to the
Court, but only gives to the Court the power to refuse its assistance in proper
cases. Therefore, to say that if we refuse to stay an action we are not
carrying out the bargain between the parties does not fairly describe the
position. We are carrying out the bargain between the parties, 919 because that
bargain to substitute for the Courts of the land a domestic tribunal was a
bargain into which was written, by reason of the existing legislation, the
condition that it should only be enforced if the Court thought it a proper case
for its being so enforced".
In Owners of Cargo Ex "Athenee" v.
Athenee, the Court of Appeal affirmed the extracted passage from Lord Moulton's
judgment. In that case the action was brought by the receivers of a part cargo
of onions, which it was alleged were damaged in course of carriage from
Alexandria to Hull, and the President of the Admirality Division declined to
stay the action. The Court of Appeal in the appeal at the instance of the
defendants declined to interfere with the order refusing the stay on the ground
that the balance of convenience and the substantial advantage which the
plaintiffs have by suing in U.K. (and which they lose by not being able to
proceed in rem against this ship) and many other advantages such as in respect
of proof of loss, a matter which any commercial tribunal would wish should be
decided, if possible, having regard to the evidence obtained at the time by
inspection of the vessel and so on, and in these circumstances the arbitration
clause in the contract was not given effect to.
Reverting to the circumstances relied upon by
the appellant which are likely to influence the discretion of the Court, the
first submission is that the whole of the principal contract including the
subcontract was carried out in India and the whole of the evidence both of the
appellant and the respondent is in India and that this is a relevant
circumstance which must influence the judicial verdict.
Appellant has itemised his different claims
in the plaint.
Broadly stated, it claims payment for extra
work, difference between agreed charges and the revised charges, loss incurred
on account of non-performance of a part of the contract by the respondent, etc.
In respect of most of the claims the appellant will have to examine the men
incharge of the work, strength of labour force supplied by it and this evidence
would certainly be in India. Respondent had set up its office at Calcutta and
this office was functioning even when the suit was instituted. Looking to the
various heads of claim by the appellant and the correspondence between the
parties prior to the suit it is safe to conclude that the evidence of the
respondent would also be in India. Of course, as a remote possibility some
highly placed officers may have to be examined by the respondent who may be in
Yugoslavia. Mr. Majumdar learned counsel for the respondents, however, urged
that the respondent has closed its office and all the books and 920 relevant
documents have been taken to Belgrade and, therefore, it is now too late in the
day to say that the evidence of the respondent is also in India. The Court is
required to consider the situation as on the date of institution of the suit
and unquestionably on the date of institution of the suit office of the
respondent at 36, Ganesh Chandra Avenue, Calcutta, was functioning and within
7-8 days of the institution of the suit respondent appeared in the suit through
Ilija Kostantinovic, Manager of the respondent stationed at Calcutta. Neither
in the main petition for stay nor in the affidavit in rejoinder it was anywhere
stated that the evidence of the respondent was not in India. It was, however,
urged that nearly a decade has rolled by and that this Court should take into
consideration the change in circumstances on account of the passage of time for
which respondent is in no way responsible. Reliance was placed on Pasupuleti
Venkateswarlu v. The Motor & General Traders. In that case an action was
brought by the landlord for recovering possession of certain premises from the
tenant. When the matter was pending in the High Court, evidence was tendered to
point out that since the institution of the action in the trial court the
landlord has recovered another accommodation and that if the subsequent
development is taken into consideration landlord has no present need of the
accommodation in possession of the tenant. The High Court admitted evidence on
this point and took into consideration the fact that the landlord has since the
institution of the suit obtained possession of another accommodation and on
this finding non-suited the appellant. An objection was taken on behalf of the
landlord before this Court that the High Court was in error in taking into
consideration subsequent events and this contention was negatived. In the very
nature of action for eviction on the ground of personal requirement, the Court
has not only to be satisfied that the requirement was present at the date of
institution of the action but continued to exist at the time of decree and has
to mould the decree accordingly. Even if subsequent events as have a bearing on
the contention canvassed before the Court have to be taken into consideration,
there is no material on record to show that the respondent has closed its
office at Calcutta and that the documents and books of accounts which may have
to be tendered in evidence have been taken to Yugoslavia. Save this, Mr.
Majumdar could not controvert the fact that the entire evidence both of the
appellant and the respondent which may be relevant for resolution of the
dispute involved in the suit is in this country, India. In Athenee (supra) case
the fact that the evidence was in U.K. was considered as very relevant
consideration for refusal to stay the suit.
In Michael 921 Golodetz & Ors. (Supra)
the fact that all the evidence of the parties was in India was accepted by this
Court as a relevant consideration for refusing to stay the suit.
The next circumstance relied upon is that the
cost of arbitration to be held at Paris would be so disproportionately high to
the amount claimed in the suit that forcing the appellant to go to arbitration
would be denial of justice. This is self-evident. The claim in the suit is Rs.
4,25,343. Now, just contemplate taking witnesses and books of accounts to Paris
for leading evidence before the International Chamber of Commerce. The cost
would certainly be disproportionately high. One need not go into the
mathematical calculations for this obvious and self- evident proposition.
The next circumstances relied upon is
restriction on availability of foreign exchange as a relevant consideration. If
witnesses are required to be taken to Paris, if lawyers are to be engaged in
Paris and if documents are to be sent to Paris, all this would require foreign
exchange. Foreign exchange is a scarce and controlled commodity. It can be
obtained for prescribed purpose. Both in the case of Michael Golodetz (Supra)
and in V/O Tractoroexport, Moscow v. M/s. Tarapore & Company and Anr., this
Court held that restriction on availability of foreign exchange is a relevant
consideration which should enter into judicial verdict for exercising the
discretion one way or the other. The High Court in this connection observed
that if the Managing Director of the appellant company could obtain foreign
exchange for going to Belgrade to sign the contract, why should it be assumed
that he would not get foreign exchange this time too to plead his cause - a
cause which owes its existence to the grant of foreign exchange in 1961 ? This
casual approach is none-too- convincing. Foreign exchange for a visit for few
days cannot be equated with heavy requirement of foreign exchange for engaging
counsel, taking witnesses and transporting documents from India to Paris so as
to substantiate a claim of Rs. 4,25,343. And the judicial approach is not
whether the appellant would get necessary foreign exchange but the approach is
should this valuable national asset of foreign exchange be frittered away for
resolving a petty matter which can be conveniently resolved even in this
country.
The next circumstance canvassed is that the
Court should not lend its assistance by granting the stay of the suit to one
who insists on arbitration not as a matter of principle but with a view to
thwarting, stifling or exhausting the other side. Respondent insists that 922
by staying the suit the appellant should be forced to go to arbitration if it
desires to vindicate its claim. Is this approach dictated by some principle or
was the respondent aware of the fact that looking to the quantum of claim the
appellant would not undertake the hazardous and expensive adventure of going to
foreign arbitration tribunal stationed at Paris and that thereby the respondent
would be able to thwart or stifle the claim of the appellant ? If the relief to
be granted is discretionary, the approach of each party persuading the Court to
exercise the discretion one way or the other would be a vital and relevant
consideration. The respondent has anyhow either to appear before the Court in
India or a foreign arbitral tribunal in Paris. The respondent is from
Yugoslavia. Apart from this, the respondent has an office at Calcutta and the
responsible officer like a Manager was stationed at Calcutta. The
correspondence between the parties prior to the institution of the suit shows
that the relevant documents were in India on the basis of which certain replies
were given by the respondent to the claims advanced on behalf of the appellant.
But once the suit was filed, the respondent insists that arbitration agreement
should be given full effect. Having regard to all the circumstances of the case
it appears crystal clear that the respondent is motivated to seek stay neither
to vindicate any principle nor to hold the appellant to the bargain but to
force the appellant to go to Paris incurring disproportionately heavy cost or
to give up the claim. In Michael Golodetz (Supra) the fact that arbitration in
New York would proceed ex parte was viewed with disfavour and stay was refused.
Similarly, in The Rehman, the principal object of the defendant was not to
achieve a trial in Russia but merely make it more difficult to the plaintiffs
to assert their claim, was emphasised while refusing stay. In such a situation
if there is other weighty circumstances which indicate that the Court should
not lend its assistance to the respondent by staying the suit, this aspect of
the approach of the respondent would reinforce the conclusion.
The next circumstance urged is that even
where parties have agreed to refer a dispute to foreign arbitral tribunal it is
always subject to a rider that the agreement is subject to the law of the land,
viz., that it does not prevent the parties from coming to the court but only
gives to the Court the power to refuse its assistance in appropriate cases. And
enforcing the agreement would work hardship or injustice, the Court would take
it into consideration before holding the parties to their bargain.
In The Rehman, a cargo was loaded at a
Russian port by a Russian shipper on board 923 the Rehman, a ship owned by a
German Company. The cargo was, by terms of the bill of lading, shipped in
apparent good order and condition and was to be delivered at the port of London
in like order and condition. The plaintiffs, an English company, purchased the
cargo and became the holders of the bill of lading, thereby agreeing to be
bound by its terms, one of which was that all questions and disputes should be
determined in the U.S.S.R. At the Port of London the cargo was discovered,
according to the plaintiff, to be contaminated and the damage was surveyed. The
plaintiffs issued a writ claiming against the defendants damages for breach of
the contract evidenced by the bill of lading. The only matter for evidence, so
far as the plaintiffs' case was concerned, that did not arise in England was
the condition of the goods when shipped, as regards which the bill of lading
contained the statement mentioned above. The defendants moved to set aside the
writ for want of jurisdiction on the ground that by the contract the parties
had agreed that all disputes arising under it should be judged in the U.S.S.R.
and contended alternatively that all proceedings should be stayed. Willmer, J.
in Admirality Division, held that where there is a provision in the contract
providing that disputes are to be referred to a foreign tribunal prima facie
the court will stay the proceedings instituted in England in breach of such
agreement and will only allow them to proceed when satisfied that it is just
and proper to do so. That according to the Court was the principle. After
further holding that the matter is in the discretion of the Court, stay was
refused on the ground that the plaintiffs were persons domiciled in England,
the claim arose in England, the damage sued for was discovered in England, the
cargo was surveyed in England, and the damage was ascertained after the survey.
The fact that the entire evidence was in England was emphasised as a relevant
consideration. The Court also observed that from the correspondence one is left
with the suspicion that the principal object of the defendants was not to
achieve a trial in Russia, but merely to make it more difficult for the
plaintiffs to assert their claim. On all these considerations stay was refused.
And this decision was affirmed by the Court of Appeal in The Rehman Denning, L.
J., observed that the dispute is more closely connected with England than with
Russia. We cannot resist the temptation to point out that the fact situation in
the case before us is almost similar, if not identical, to the one in The
Rehman (Supra).
The last circumstance relied upon is that in
all cases of arbitration by a foreign arbitral tribunal there is always a rider
that in 924 case of hardship or injustice Courts of the country of the party
being forced to go to foreign arbitral tribunal will protect him. Ordinarily,
the Court where the cause of action has arisen would try to resolve the dispute
brought before it from the cause of action arising out of its jurisdiction.
If parties have agreed to another mode of
resolution of dispute, the Court may hold the parties to their bargain but when
the Court is deprived of the jurisdiction by an agreement between the parties
and if the Court is called upon to enforce it, the matter will still be within
the discretion of the Court. As was stated in Bristol Corporation (Supra) case
when the Court refused to stay an action it cannot be said that the Court is
not carrying out the bargain between the parties because that does not fairly
describe the position. The Court is carrying out the bargain between the
parties because the bargain to substitute for the Courts of the land a domestic
tribunal was bargain into which was written, by reason of the existing
legislation, the condition that it should only be enforced if the Court thought
it a proper case for its being so enforced. And that is where the discretion of
the Court creeps in. Further, Russel on Arbitration, 19th Edn., p. 194, neatly
sums up the relevant considerations for granting or refusing stay. It reads :
"The principles established by the
authorities can, I think, be summarised as follows : (1) Where plaintiffs sue
in England in breach of an agreement to refer disputes to a foreign Court, and
the defendants apply for a stay, the English court, assuming the claim to be
otherwise within its jurisdiction, is not bound to grant a stay but has a
discretion whether to do so or not. (2) the discretion should be exercised by
granting a stay unless strong cause for not doing so is shown. (3) The burden
of proving such strong cause is on the plaintiffs. (4) In exercising its
discretion the court should take into account all the circumstances of the
particular case. (5) In particular, but without prejudice to (4), the following
matters, where they arise, may properly be regarded :- (a) In what country the
evidence on the issues of fact is situated, or more readily available, and the
effect of that on the relative convenience and expense of trial as between the
English and foreign courts. (b) Whether the law of the foreign court applies
and, if so, whether it differs from English law in any material respects. (c)
With what country either party is connected, and how closely. (d) Whether the
defendants genuinely desire trial in the foreign country, or are only seeking
procedural advantages. (e) Whether the plaintiffs would be prejudiced by having
to sue in the foreign court because they would: (i) be deprived of security for
their 925 claim; (ii) be unable to enforce any judgment obtained;
(iii) be faced with a time-bar not applicable
in England; or (iv) for political, racial, religious or other reasons be
unlikely to get a fair trial".
To sum up, the entire evidence both of the
appellant and the respondent is in this country; the contract as a whole was
executed and carried out in this country; the claim as a whole arose in this
country; the appellant is a company incorporated in this country and the
respondent is having its office in this country; and that the respondent is not
motivated by any principle to have the decision of the foreign arbitral
tribunal at Paris but the principal object of the respondent is merely to make
it more difficult, if not impossible, for the appellant to assert the claim.
Add to this two other vital considerations, viz., that the cost of arbitration
at Paris will be so disproportionately high to the claim involved in
adjudication that one would never think of incurring such a huge cost to
realise such a small sum claimed, and the restriction on the availability of
foreign exchange, another vital relevant consideration. The sum total of all
these well established circumstances clearly indicate that this was a suit in
which when discretion is exercised on well settled judicial considerations no
court would grant stay and the stay has to be refused.
And now to the approach of the appellate
Bench of the High Court relevant to the point. Says the Court :
"Here is a contract solemnly entered
into between the appellant, an Indian company, and the respondent, a Yugoslav
company, in aid of another contract entered into between the latter and the
State of Bihar through its Electricity Board for erection of a thermal power
station at Barauni. What a valuable possession for the nation such thermal
power station means is plain to be seen. We do not, Yugoslavs do, know the
know-how, of erecting a thermal power station. Hence they are here on the role
of collaborators to help us make such an invaluable acquisition. And to get it
built the authorities spare from their none too adequate resources the
requisite foreign exchange for the appellant's managing director, Lalbhai, in
order to enable him to proceed to Belgrade with a view to signing the contract,
which he does, his signature being "only one centimetre away" from
the contract's arbitration clause".
Does it call for any comment or analysis that
the division bench completely misdirected itself while examining the question
of granting discretionary relief one way or the other ? Does it disclose
exercise 926 of discretion on sound judicial principles or the Court is carried
away by the considerations wholly extraneous and irrelevant? Yugoslavs did not
undertake construction of thermal power station actuated by any altruistic
motive but guided by sound business considerations. One who comes here to earn
by going into business need not be put on a pedestal. The High Court overlooked
the global competition for obtaining international contracts and it is not a
philanthropic motive. The extracted passage clearly indicates an approach not
dictated by sound judicial principles but considerations wholly extraneous to
the issue under discussion. It is in these circumstances that this Court is
constrained to interfere with the discretionary relief granted in this case.
The next contention is that in view of the
provisions contained in Arbitration (Protocol and Convention) Act, 1937, (`1937
Act' for short), the Court could not invoke its inherent jurisdiction under s.
151, C.P.C., and the special Act would not assist the respondent because the
present case is not covered by the provisions of the Act. Mr. Majumdar urged
that the 1937 Act was enacted to give effect to the protocol on arbitration
clause set forth in the First Schedule and to the convention on the execution
of foreign arbitral awards set forth in the Second Schedule as India was a
signatory to the protocol. Mr. Majumdar urged that even if the application for
stay is not entertainable under s. 34 of the Arbitration Act on the ground that
this is a foreign arbitration to which Arbitration Act, 1940, will not apply,
nor could he invoke inherent jurisdiction of the Court under s. 151 of the Code
of Civil Procedure, yet the application is maintainable under s. 3 of the 1937
Act.
Section reads as under:
"3. Notwithstanding anything contained
in the Arbitration Act X of 1940, or in the Code of Civil Procedure, 1908, if
any party to a submission made in pursuance of an agreement to which the
Protocol set forth in the First Schedule as modified by the reservation subject
to which it was signed by India applies, or any person claiming through or
under him, commences any legal proceeding in any court against any other party
to the submission or any person claiming through or under him in respect of any
matter agreed to be referred, any party to such legal proceeding may, at any
time after appearance and before filing a written statement or taking any other
steps in the proceedings, apply to the Court to stay the proceedings; and the
Court unless satisfied that the agreement or arbitration has become inoperative
or cannot proceed, or that there is not in fact any dispute between the parties
with regard to the matter agreed to be referred, shall make an order staying
the proceedings".
927 India and Yugoslavia have ratified the
protocol. The question, however, is whether s. 3 is attracted in this case. The
important expression in s. 3 to be noted is: "if any party to a submission
made in pursuance of an arbitration agreement to which the Protocol set forth
in the First Schedule as modified by the reservation subject to which it was
signed by India applies". This expression postulates an agreement to which
the protocol set forth in the First Schedule as modified by the reservation
subject to which it was signed by India applies and a submission made in
pursuance of such agreement. Now, both India and Yugoslavia have ratified the
protocol modified by the reservation subject to which it was signed by India.
It may be assumed that arbitration agreement between the parties to this appeal
is governed by the 1937 Act. Section 3 is, however, not attracted merely where
an agreement as set forth in the First Schedule is subsisting between the
parties but the next step ought to have been taken before proceedings can be
stayed in exercise of the power conferred by s. 3, viz., submission made in
pursuance of such an agreement. A reference to s. 3 of the Foreign Awards
(Recognition & Enforcement) Act, 1961, ('1961 Act' for short), prior to its
amendment by the Amending Act of 1973 and a decision of this Court interpreting
the expression:
"if any party to a submission made in
pursuance of an agreement to which" would clearly establish that mere
existence of an agreement as envisaged by the First Schedule would not attract
s. 3 of the 1937 Act but it would only be attracted where there is a submission
pursuant to that agreement. Section 3 of the 1961 Act prior to its amendment in
1973 read as under:
"3. Stay of proceedings in respect of
matter to be referred to arbitration: Notwithstanding anything contained in the
Arbitration Act X of 1940 or in the Code of Civil Procedure, 1908, if any party
to a submission made in pursuance of an agreement to which the Convention set forth
in the Schedule applies, or any person claiming through or under him, commences
any legal proceedings in any Court against any other party to the submission or
any person claiming through or under him in respect of any matter agreed to be
referred, any party to such legal proceedings may at any time after appearance
or before filing a written statement or taking any other steps in the
proceedings, apply to the Court to stay the proceedings and the Court, unless
satisfied that the agreement is null and void in-operative or incapable of
being performed or that there is not in fact any dispute between the parties
with regards to the matter agreed to be referred, shall make an order staying
the proceedings".
928 This section came in for interpretation
in V/O Tractoro- Export, Moscow. Interpreting this section this Court held as
under:
"But in the present case a suit is being
tried in the courts of this country which, for the reasons already stated,
cannot be stayed under section 3 of the Act in the absence of an actual
submission of the disputes to the arbitral tribunal at Moscow prior to the
institution of the suit" Section 3 of 1937 Act is in pari materia with s.
3 of 1961 Act. It, therefore, becomes crystal clear that s. 3 of the 1937 Act
would only be attracted if there is a submission pursuant to an agreement to
that effect. In fact, the decision in V/O Tractoro-export, Moscow, (Supra) made
it necessary for the Parliament to amend s. 3 of the 1961 Act.
In this case we are concerned with s. 3 of
the 1937 Act which is not amended. It must, therefore, receive the same
interpretation which an identical provision received at the hands of this
Court. Viewed from that angle, in this case while there is an agreement as
contemplated by First Schedule to 1937 Act, there is no submission made in
pursuance of such agreement and, therefore, the application of the respondent
could not have been entertained under s. 3 of the 1937 Act. As far as the 1961
Act is concerned, Mr. Majumdar conceded that Yugoslavia has not ratified the
protocol pursuant to which 1961 Act was enacted and, therefore, the respondent
cannot maintain its application under s. 3 of the 1961 Act.
The last submission is that this being an
arbitration agreement to refer a dispute to a foreign arbitral tribunal, s. 34
of the Arbitration Act would not be applicable and hence the application of the
respondent for stay of the suit is not maintainable. It is not necessary to
examine this contention on its merits because we have assumed for the purpose
of this appeal that s. 34 of the 1940 Act would be attracted even where the
agreement is to refer a dispute to a foreign arbitral tribunal.
Having examined the matter from all angles it
is clear that both the learned single judge and the division bench of the High
Court were in error in granting stay of the suit in this matter and, therefore,
Civil Appeal No. 2407 of 1968 is allowed and the stay of suit granted by the
learned single judge and affirmed by the division bench of the Calcutta High
Court is vacated. The suit should accordingly proceed further from the stage
where it was stayed. As the suit is a very old one, we hope the trial court
would give priority to it and dispose it of as expeditiously as possible. The
appeal is allowed with costs throughout.
N.V.K. Appeal allowed.
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