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Ramchandra Ram Nag R... v. The Howrah Oil Mills...
Factual and Procedural Background
The plaintiff, a limited company, sued for recovery of Rs. 4233|11|6 as the balance price for goods sold and supplied to defendant No. 1 under contracts from 1942. Defendant No. 1 was the buyer and defendant No. 2 acted as its agent. The suit was originally filed on 21 July 1945 in the court of the 1st Subordinate Judge of Gaya (Money Suit No. 90 of 1945). A preliminary issue regarding territorial jurisdiction arose, and on 22 July 1954, the Gaya court held it lacked jurisdiction and returned the plaint for presentation in the proper court. The plaintiff then refiled the suit on 2 August 1954 in the Court of the Subordinate Judge of Howrah. Defendant No. 1 applied for a stay of the suit under section 34 of the Indian Arbitration Act, alleging an arbitration clause in the contracts. Both lower courts granted the stay, and the plaintiff challenged this order by obtaining the present Rule.
Legal Issues Presented
- Whether there existed a valid arbitration agreement between the plaintiff and defendant No. 1 under section 2(a) of the Indian Arbitration Act, 1940, justifying the stay of the suit under section 34 of the Act.
- Whether the dispute claimed by the plaintiff falls within the scope of the arbitration clause.
- Whether procedural requirements under sections 8 and 9 of the Indian Arbitration Act were properly complied with in proceeding with the arbitration.
Arguments of the Parties
Appellant's Arguments (Plaintiff)
- Contended that no arbitration agreement existed between the plaintiff and defendant No. 1, as the contract was evidenced by bought and sold notes, and the sold notes were not produced in the Howrah court, leading to adverse inference.
- Argued that the arbitration agreement must be signed by both parties under section 2(a) of the Indian Arbitration Act, relying on English cases and the decision of Page, J. in John Batt & Co. (London), Ltd. v. Kanoolal & Co.
- Asserted that the arbitration clause only covers disputes relating to interpretation of contract terms, not claims arising under the contract.
- Attempted to rely on the principle from Johurmull Parasram & Ors. v. Louis Dreyfus & Co., Ltd. that a suit for reasonable price de hors contract is not stayable under section 34.
- Argued that defendant No. 1 failed to take steps to proceed with arbitration after nominating an arbitrator, invoking sections 8 and 9 of the Indian Arbitration Act.
Respondent's Arguments (Defendant No. 1)
- Produced bought notes containing an arbitration clause signed by the broker, asserting that sold notes (though not produced) would correspond and also contain the arbitration clause.
- Asserted that acceptance of the sold notes and delivery of goods amounted to acceptance of the arbitration clause under section 2(a), even if only one party signed.
- Maintained that the arbitration clause covers all disputes regarding the contract, including claims for unpaid price balance.
- Contended that section 8 of the Indian Arbitration Act did not apply as the arbitration clause required two arbitrators nominated separately, not by mutual consent.
- Explained that no steps could be taken to proceed with arbitration before the stay order under section 34, and any such proceedings would be invalid under section 35.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| John Batt & Co. (London), Ltd. v. Kanoolal & Co. (I.L.R 53 Cal. 65) | Requirement of signatures by both parties for arbitration agreement under section 2(a) Indian Arbitration Act. | Rejected by the court as the view was expressly dissented by a Division Bench and subsequent authorities. |
| Radha Kanta Das v. Baerlin Brothers Ltd. (I.L.R 56 Cal. 118) | Arbitration agreement need not be signed by both parties under Arbitration Act of 1889 and Indian Arbitration Act. | Followed by the court to hold that acceptance of arbitration terms can be by conduct or oral acceptance. |
| Sankar Lal Lachmi Narain v. Jany Brothers (I.L.R 53 All 384) | Support for the principle that signature by both parties is not essential for arbitration agreements. | Applied as authoritative support for the court's interpretation of arbitration agreements. |
| Keshoram Cotton Mills v. Kanhyalal Baqwani (44 C.W.N 697) | Similar principle under the Indian Arbitration Act of 1899 regarding arbitration agreement signatures. | Reinforced the court's view on arbitration agreement acceptance. |
| Firm Mangal Chand v. Firm Pyare Lal (A.I.R 1949 East Punjab 199) | Clarification that arbitration agreement need not be signed by both parties; acceptance by conduct or oral agreement suffices. | Considered conclusive by the court in affirming the legal position on arbitration agreements. |
| Jugal Kishore Rameshwardas v. Mrs Goolbai Hormusji [(1956) S.C.A 499 : A.I.R 1955 S.C 812] | Supreme Court ruling that arbitration agreement in writing does not require signatures of both parties. | Held as settled law binding on the court, obviating need for further consideration. |
| Johurmull Parasram & Ors. v. Louis Dreyfus & Co., Ltd. (52 C.W.N 237) | Suit for reasonable price de hors contract is not stayable under section 34 of the Indian Arbitration Act. | Distinguished by the court as the present case is based on contract claims and thus stayable under section 34. |
Court's Reasoning and Analysis
The court analyzed whether a valid arbitration agreement existed between the plaintiff and defendant No. 1. It rejected the plaintiff's argument that the arbitration agreement must be signed by both parties, relying on authoritative precedents including a Supreme Court decision which held that acceptance of arbitration terms may be by conduct or oral agreement and that signatures by both parties are not essential under section 2(a) of the Indian Arbitration Act, 1940.
The court found that the plaintiff's acceptance of the sold notes—signed by the broker acting as agent for defendant No. 1—and the delivery of goods constituted acceptance of the arbitration clause, forming a valid arbitration agreement.
Regarding the scope of the arbitration clause, the court held that the phrase "all disputes regarding the contract" includes claims for unpaid price balances, not merely disputes over interpretation of terms.
The court distinguished the plaintiff's claim from the principle in Johurmull Parasram, noting that the plaintiff's suit was based on contract claims subject to arbitration.
On procedural arguments invoking sections 8 and 9 of the Arbitration Act, the court observed that section 8 was inapplicable because the arbitration clause required two arbitrators nominated separately, not by mutual consent. It further noted that the stay order under section 34 prevented defendant No. 1 from proceeding with arbitration, and any such proceedings would be invalid under section 35.
Consequently, the court upheld the orders granting stay of the suit under section 34, disallowing the plaintiff's challenge.
Holding and Implications
The court DISCHARGED the Rule obtained by the plaintiff, thereby upholding the stay of the suit granted under section 34 of the Indian Arbitration Act.
The direct effect is that the suit for recovery of the balance price is stayed pending arbitration as per the arbitration clause in the contracts. No new precedent was set; the court applied existing authoritative decisions to confirm that an arbitration agreement need not be signed by both parties and that claims arising under the contract fall within the arbitration clause. The procedural requirements for arbitration appointment under sections 8 and 9 were clarified as inapplicable or constrained by the stay order under section 34.
Lahiri, J.:— The plaintiff which is a limited Company has obtained this Rule against an order of the District Judge of Howrah affirming on appeal an order made by the First Subordinate Judge of Howrah under section 34 of the Indian Arbitration Act of 1940. The plaintiff sued for the recovery of a sum of Es. 4233|11|6 alleged to be due to it as the balance of price of goods sold and supplied to defendant No. 1 on the basis of various contracts entered into on diverse dates in the year 1942. According to the plaintiff, the defendant No. 1 is the buyer of goods and defendant No. 2 acted as the agent of defendant No. 1. The suit was originally filed on the 21st of July, 1945, in the court of the 1st Subordinate Judge of Gaya and registered as Money suit No. 90 of 1945. After passing through various stages the suit was ultimately taken up for hearing on a preliminary issue as to whether the 1st Subordinate Judge of Gaya had territorial jurisdiction to entertain the suit. By an order dated the 22nd July, 1954, the Subordinate Judge of Gaya came to the conclusion that he had no territorial jurisdiction to entertain the suit and he accordingly returned the plaint for presentation to the proper court. Thereafter on the 2nd of August, 1954, the plaintiff refiled the plaint in the Court of the Subordinate Judge of Howrah. The defendant No. 1 filed an application for stay of the suit under section 34 of the Indian Arbitration Act alleging that the contracts under which goods were sold contained an arbitration clause. Both the courts below have granted that prayer and against that order the plaintiff has obtained the present Rule.
2. Mr. Mukherjee appearing in support of the Rule has raised various points before us. The first point raised by Mr. Mukherjee is that it cannot be said that there was any arbitration agreement between the plaintiff and the defendant No. 1 and consequently the courts below acted without jurisdiction in making an order of stay under section 34 of the Indian Arbitration Act. The contract in this case was entered into by the delivery and acceptance of bought and sold notes to the buyer and seller respectively. The bought notes delivered by the broker to the defendant No. 1 have been produced by them but the sold notes, though produced by the plaintiff in the Gaya Court, have not been produced in the Howrah Court, and both the courts have drawn an adverse inference against the plaintiff for the non-production and have held that the sold notices, if produced, would have shown that they are the counter parts of the bought notes which have been produced by the defendant No. 1. The bought notes which have been produced by the defendant No. 1. contain an arbitration clause which runs as follows:
“All disputes regarding the contract are to be settled by two arbitrators one nominated by buyers and one nominated by sellers respectively in accordance with the Indian Arbitration Act in Calcutta.”
3. The bought notes which have been produced by the defendant No. 1 also show that they are signed by the broker only and so it may be inferred that the sold notes were similarly signed by the broker only. From this fact Mr. Mukherjee at one stage sought to argue that the acceptance of these bought and sold notes by the buyer and seller respectively at best created a contract between the buyer and the broker on the one hand and the seller and the broker on the other, and that it did not create any privity of contract between the buyer and the seller. When, however, it was realised that this argument would strike at the very foundation of the plaintiff's claim against the defendant No. 1, it was abandoned. It was, however, still argued that the contract did; rot create an arbitration agreement between the plaintiff and the defendant No. 1 within the mean ing of the Arbitration Act. Reliance was placed on the definition of “arbitration agreement” as given in section 2(a) of the Indian Arbitration Act, and it was argued that in order to constitute an arbitration agreement, the agreement must be signed by both the parties. This view was taken in certain English cases which were followed by Page, J., in the case of John Batt & Co. (London), Ltd.…Plaintiffs; v. Kanoolal & Co.…Defendants., (1) (I.L.R 53 Cal. 65). This view, however, was expressly dissented from by a Division Bench presided over by Rankin, C.J in the case of Radha Kanta Das v. Baerlin Brothers Ltd., (2) (I.L.R 56 Cal. 118), After referring to the view taken by Page, J. in John Batt's case, (1) (supra) Sir George Rankin observed as follows:
“In my judgment, the law is the other way. The Arbitration Act of 1889 and the Indian Arbitration Act for the best of good reasons have not required that the agreemnet to submit should be signed by both parties.”
4. The same view was taken in the case of Sankar Lal Lachmi Narain v. Jany Brothers, (3) I.L.R 53 All 384. In the case of Keshoram Cotton Mills v. Kanhyalal Baqwani*, (4) 44 C.W.N 697, Panckridge J. also followed this view. It is true that all these decisions were under the Indian Arbitration Act of 1899, but that does not make any difference, because the definition of the word “submission” in section 4, clause (b) of the Arbitration Act of 1899 is identical with the definition of the words “arbitration agreement” in section 2(a) of the Indian Arbitration Act of 1940. Mr. Mukherjee pressed us to dissent from the view taken by Rankin, C.J in (2) (supra) 56 Cal. 118, and to refer this question to a Full Bench. But it seems the matter is now clinched by subsequent authorities. Mr. Meyer has placed before us the decision of the East Punjab High Court in the case of Firm Mangal Chand v. Firm Pyare Lal. (5) A.I.R 1949 East Punjab, 199, where Mahajan, J., after an exhaustive review of all the English and Indian authorities on the point hold as follows:
“The result of the above discussion is that it can be safely said that at the present moment both in England and in India the law is well settled. When section 2(a), Arbitration Act of 1940 speaks of an agreement in writing all that it seems is that the terms of the agreement should be expressed in writing and that the agreement should be such that it binds both the parties and that the actual signatures of both the parties on the agreement are not essential. The agreement may be in the form of a signed document by both the parties containing all the terms or a signed document by one party containing the terms and a plain acceptance, signed or orally accepted by other party, or it may be an unsigned document containing the terms of a submission to arbitration agreed to orally by both the parties. It is sufficient if one party signs the submission and the other accepts it. The acceptance may be by word of mouth or may be by conduct”
5. Finally, in the ease of Jugal Kishore Rameshwardas v. Mrs Goolbai Hormusji , (6) [(1956) S.C.A 499 : A.I.R 1955 S.C 812], the Supreme Court has held that it is settled law that to constitute an arbitration agreement in writing it is not necessary that it should be signed by the parties, and that it is sufficient if the terms are reduced to writing and the agreement of the parties thereto is established. In view of the pronouncement of the Supreme Court it is unnecessary for us to consider the question further We are bound to hold that in order to constitute an agreement in writing within the meaning of section 2(a) of the Indian Arbitration Act, it is not necessary that the agreement should be signed by both the parties. All that is necessary is that the parties should accept the terms of the agreement. The acceptance may be in writing or by conduct or by oral agreement. It is therefore necessary to see if the plaintiff in the present case accepted the terms which contain an arbitration clause. The plaintiff parted with its goods upon the sold notes delivered to it by the broker. The very fact that the plaintiff retained the sold notes and parted with its goods shows that it accepted all the terms of the sold notes. It was open to the plaintiff to refuse to part with its goods upon the sold notes, but it is not open to it to retain the sold notes and part with the goods and at the same time claim that it is not bound by the terms. These sold notes again were signed by the broker who, according to the statement in paragraph 2 of the plaint, was acting as the agent of defendant No. 1. So, the position is this; the plaintiff delivered the goods upon certain terms containing an arbitration clause which reduced to writing and signed by the agent of defendant No. 1. This, in my opinion, amounts to acceptance of all the terms contained in the sold notes and constitutes an arbitration agreement within the meaning of section 2(a) of the Indian Arbitration Act. It is idle to contend that the terms contained in the bought and sold notes were merely broker's intimation communicated to the parties after the con-elusion of the contract. There can be no question that the terms contained in these bought and sold notes constituted the very foundation of the contract upon which the plaintiff rests its claim. The first point raised by Mr. Mukherjee must accordingly be overruled.
6. The second point argued before us is to the effect that the dispute in the present case is not covered by the arbitration clause. It is contended that the provision in the arbitration clause to the effect that all disputes regarding the contract means and includes only disputes relating to the interpretation of the terms and conditions of the contract and does not cover a claim under the contract. I do not see any force in this argument. “All disputes regarding this contract,” in my opinion, includes not only disputes relating to the interpretation of the terms and conditions of the contract, but also includes all claims arising under the contract. In the plaint the plaintiff takes care to set out in paragraphs 5 and 6 of the plaint the terms of the contract relating to the payment of 90 per cent of the price against railway receipts and the balance after weighment, and the plaintiff's case is that the defendant No. 1 wrongfully refused to pay the 10 per cent of the price which remained due to the plaintiff. In my opinion there is no doubt that this claim is covered by the arbitration clause. The second point must accordingly be overruled.
7. Mr. Mukherjee also made a faint attempt to bring the case within the principles of a decision of this court in the case of Johurmull Parasram & Ors.… v. Louis Dreyfus & Co, Ltd.…*, (7) 52 C.W.N 237. That was a case where the plaintiff instituted a suit not on the basis of any contract containing any arbitration clause, but for the reasonable price of goods sold and delivered de hors the contract.
8. In that case Harries, C.J and Mukherjea, J. hold that such a suit could not be stayed under section 34 of the Indian Arbitration Act of 1940. Looking at the allegations made by the plaintiff in the present case, however, it is quite clear to me that in this case the plaintiff bases his claim entirely upon the contract. The statements in paragraphs 2, 3, 4, 5, 6 and 7 of the plaint make it quite clear that the plaintiff is suing for the recovery of the balance of the price due to it upon contracts entered into on diverse dates in the year 1942. I, therefore, cannot see how it can be said that this case is to be governed by the principles laid down by Harries, C.J in the case of Johurmull Parasram.
9. The second point which has been raised by Mr. Mukherjee before us was not raised in any of the courts below and it is based upon certain statements made by the defendant No. 1 in the application for stay under section 34 of the Indian Arbitration Act. Mr. Mukherjee contends that as this question arises upon the very allegation made by defendant No. 1 in the application, we should allow him to raise it for the first time in this court and we have allowed him to raise this point before us. The defendant No. 1 in the application under section 34 stated in paragraph 12 that by a letter dated the 7th July, 1951, the defendant No. 1 intimated to the plaintiff that the defendant No. 1 had nominated an arbitrator in accordance with the terms of the contract and requested the plaintiff company to nominate its arbitrator for deciding all disputes and differences arising out of the contract. In spite of that, Mr. Mukherjee argues, the defendant No. 1 did not take any steps to file an application according to the provisions of section 8(2) of the Indian Arbitration Act. Sub-section 2 of section 8 provides that if an appointment is not made by the other party within 15 days after service of the notice, the court may, on the application of the party who gave the notice, appoint an arbitrator; but the reference to section 8 of the Indian Arbitration Act appears to me to be wholly misconceived. That section applies where an arbitration agreement provides that the reference “shall be to ono or more arbitrators to be appointed by consent of the parties.” In the case before us, however, the arbitration clause provides that the arbitration shall be by two arbitrators, one to be nominated by the buyer and the other to be nominated by the seller. In this case there is no question of one or more arbitrators being appointed by the consent of all the parties. Consequently, section 8 can have no possible application to this case. Mr. Mukherjee then argued that under clause (b) of section 9 which evidently applies to the facts of this case, it was the duty of the defendant No. 1 to take steps for proceeding with the arbitration by the arbitrator who had been appointed by them, and in view of the fact that no steps have been taken by the defendant No. 1 for proceeding with the arbitration in spite of the letter dated 7th July, 1951, it should be held that the defendant No. 1 has no right to proceed with the arbitration agreement With regard to this argument, it is to be noticed that it was impossible for the defendant No. 1 to take steps for proceeding with the arbitration in view of the provisions of section 35 of the Indian Arbitration Act. I have already stated that the suit was pending in the court of the Subordinate Judge of Gaya from the 21st July, 1945 up to 22nd July, 1954, and shortly thereafter the plaintiff refiled the plaint in the court of the Subordinate Judge, Howrah, and unless the defendant No. 1 got an order of stay under section 34, it was impossible for them to proceed with the arbitration, and even if they did, all proceedings before the arbitrator would be invalid under section 35 of the Indian Arbitration Act.
10. For the reasons given above we are unable to interfere with the order made by the learned District Judge and this Rule must accordingly be discharged with costs to opposite party No. 1.
Guha, J.:— I agree.
S.N.S
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