Judgement
JAGANMOHAN REDDY, J. : -
These are two Civil Miscellaneous Appeals against the orders of the Subordinate Judge, Anantapur, in I. As. 347 and 381 of 1955, allowing the latter and dismissing the former with costs. The appellant had filed a suit in the Court of the Subordinate Judge, Anantapur, against the respondent, who is a contractor, for a declaration that he is not entitled to Rs. 19,339-10-9 on account of work done on a building contract and for an injunction restraining him from proceeding with the arbitration which was pending before Dewan Bahadur A. Nageswar Iyer. It is necessary to state a few facts for a better appreciation of the contentions urged in these appeals.
2. The appellant called for tenders for building a mill premises and the respondent, contractor, tendered for it. His tender was accepted. An agreement was subsequently entered into on 18-4-1952 between the parties and the contractor thereafter agreed also to construct other buildings as such as canteen, power house etc. on the same conditions as are mentioned in the agreement dated 18-4-1952. It is alleged that in pursuance of the agreement the respondent carried out the works and was submitting from time to time various bills to the Consulting Engineer of the appellant and on 12-3-54 he submitted a bill for work done aggregating to Rs. 7,14,268-11-0 inclusive of sales-tax and after giving credit to the amounts already received by him, he claimed a sum of Rs. 37,677-13-6.
In the letter accompanying the bill, the respondent asked for valuation and payment for certain extra items which, according to the bill received on 14-4-1954, were valued at Rs. 2,53,437/-. The Consulting Engineer immediately replied that there was no authorisation for this extra lead and that the claim was suddenly sprung on him. It was accordingly rejected on the ground that the alleged expenditure was not authorised and the claim for extra was not in accordance with the terms of the agreement dated 18-4-1952.
After the claim was rejected, the respondent caused a notice to be issued by his advocate on 18-2-1955 calling on the appellant to have the disputes settled by reference to arbitration. He subsequently nominated Dewan Bahadur Nageswar Iyer, retired consulting Engineer, Government of India, as an arbitrator and called on the appellant to nominate another arbitrator within fifteen days, in default of which the appellant was informed that the arbitrator appointed by the contractor would function as the sole arbitrator as per the terms of the agreement dated 18-4-1952.
The appellant by his telegarm dated 22-4-1955 intimated that the arbitration was illegal. Thereafter O. S. 43/1955 was filed on 24-9-1955 as aforesaid. In that suit I. A. 347/55 under O. 39 Rr. 1 and 2 C. P. C. was filed for restraining the arbitrator from going on with the arbitration till the disposal of the suit. Interim injunction was granted on 24-9-1955. Respondent put in a counter and also rued I. A. 381/55 for a stay of the proceedings in the suit under S. 34 of the Arbitration Act. As we have already stated the Subordinate Judge allowed this application and dismissed the application filed by the appellant after vacating the stay.
3. In these appeals learned advocate for the appellant contends that the dispute is not one governed by the agreement and therefore Cl. 40 of the agreement (Ex. A-4) does not apply. According to him the claim for the extra lead put forward by the respondent not being founded on the agreement, Ex. A-4, but being based on a distinct oral agreement, the arbitration clause cannot be invoked; that the works not being completed by the respondent, the reference to the arbitration was premature, unless the written consent of the employer or the Consulting Engineer or the Contractor was given for such reference; that in any case the Court in exercise of its discretion should have dismissed the petition for stay of proceedings in the suit and should have granted his application as the matter in dispute involved adjudication of a charge of fraud against one of the parties; that the question in dispute involves a question of law and the Court rather than the arbitrator is best fitted to determine it.
4. Learned advocate for the respondent counters these contentions and submits that the dispute is one which arises under the agreement and is referable to arbitration under clause 40 read with clause 1 of the agreement; that it was not founded on an oral agreement alone, but there were written instructions with respect to these matters; that the work had been completed in accordance with the terms of the agreement and consequently the reference was not premature; and that there was no question of fraud, nor does the dispute involve only a question of law, but that it was a mixed question of fact and law to be determined by the arbitrators.
In any case, he contends that it is not a fit case where the Court, in exercise of its discretion should dismiss the petition for stay of proceedings in the suit or to allow the appellants petition for staying the arbitration proceedings.
5. The respondents case is that the tender which was accepted by the appellant was on condition that stone and sand from a specific quarry and river should be used. In paragraph 9 of the written statement the respondent stated that at the inspection of the site and Konakondla quarry on 20-4-1952 by the Consulting Engineer, the General Manager and the Mill Supervisor at which the defendants Engineer and representative were also present, the Consulting Engineer stated that the stone collected by the defendant were greyish and not consistent in color and hardness and asked the defendants representatives to stop collection of the same from Konakondla quarry; that they inspected a quarry in the evening at Goolipalayam which was about eight and half miles from the work site; that the Consulting Engineer asked the respondents representative to arrange for getting his materials from the quarry; that even then the Consulting Engineer and the General Manager assured the respondents representative that the extra rate therefore would be settled at the end and that the respondent would be paid for the additional cost involved in the respondent getting the materials from the other place which was obviously more distant, difficult and expensive. This is what he says : -
"........It was on the basis of that assurance and understanding that the defendant arranged and got the stones and jelly from the Goolipalayam quarry. In any event, the defendant is entitled to be paid extra for it. In pursuance of the instructions of the Consulting Engineer, the plaintiffs Supervisor wrote to the defendant on 21-4-1952 to stop collection of the materials from the Konakondla quarry and to arrange to get them elsewhere.
Moreover it was the plaintiffs General Manager that arranged with the Village Munsif of Goolipalayam to get a lease of the approach land to the Goolipalayam quarry for the defendant. The said quarry is about eight and half miles from the work site while the Konakondla quarry is only about 3 miles; the former is at a distance of nearly two furlongs from the road without access to it, while the latter is a butting the road ........Under the circumstances the claim for extra in respect of the change of quarry is normal and legitimate and had been agreed to and only the rates had to be settled later.
As it was clearly agreed that the defendant would have to be paid extra for the stones from Goolipalayam, the defendant in submitting his second bill as early as 17-8-1952 claimed in respect of rough stones collected at the site at the rate of Rs. 30/- for 100 Nos. and the same was accepted and certified by the Consulting Engineer and payment was also made therefor by the General Manager on the said footing; the further bills were also similarly made and paid for." In para 10 the respondent stated that when he submitted his second bill dated 17-8-1952 in which he claimed for sand from Gooty collected at the site at Rs. 35/- per 100 C. Ft. the Consulting Engineer allowed the rate of Rs. 30/- and the same was paid bv the plaintiff, while the rate fixed for sand from Kotala river was only Rs. 22/8/-. He therefore contended that the appellant has agreed to pay extra for getting sand and stone from places different from what were originally specified.
The respondents advocate has referred us to the bills of quantities. The conditions in paragraph 11 of the Bills of Quantities where the contractor was required to specify the names of quarries from which he proposes to cart stones, jelly and sand and to send samples of these materials with the tender, he says, were complied with and the tender was accepted. The rate given for the first 25.000 C. Ft. of river sand was Rs. 22/8/-per 100 C. Ft. but this was asked to be discontinued by the letter of the Supervisor dated 27-7-1952 in which it is stated as follows : -
"As the consulting Engineer and the Chairman do not wish to use Kottala sand, kindly arrange to get sand from Gooty. Please note that Kottala sand cannot be used for concreting or masonry works."
This letter is not, however, admitted by the appellant. Ex. B-3 is another letter dated 28-7-1952 which says that the Consulting Engineer has in his inspection note dated 22-7-1952 suggested that the respondent might investigate the possibility of getting sand from Gooty by wagons. It concludes thus :
"Therefore, you can always count on our good offices or help in this matter. On hearing from you, we shall do the needful."Again through Ex. B-7 dated 27-9-1952 after referring to the directions of the Consulting Engineer contained in his inspection notes dated 25-9-1952, the respondent was requested to refrain from using the black variety of sand for any purpose pending test to be carried out by the Supervisor. By Ex. B-18 dated 27-10-1953 the respondent wrote to the appellant asking him to settle the rates for various pending items and the rate for the extra lead for stones, sand etc. to facilitate him to prepare the bill. The Consulting Engineer though expressed surprise at this request concluded his reply to the above letter as follows : -
"Please submit your rates for the pending items and also clarify what you mean by extra rate for the extra lead of stones, sand etc.."There is a great deal of correspondence between the parties relating to this controversy to which it is unnecessary to refer at this stage. Suffice it to say that in Ex. B-29 dated 26-4-1954, a letter from the Consulting Engineer to the respondent, a meeting was fixed on 4th May, at Guntakal for discussion and settlement of extra items and the respondent was requested to depute his representatives with all relevant information, analysis etc.
Learned advocate for the appellant has also referred us to several exhibits to show that whenever a variation was intended, the Consulting Engineer would give specific instructions such as those contained in Exs. B-5, B-6, B-7, B-11 and B-12 etc., and the conduct of the respondent relating to the extra claim for Sand and stone as disclosed in Exs. B-17, B-19, B-22, B-31 and B-32 was contrasted.
6. For a consideration of the aforesaid contentions urged before us it is now necessary to notice the relevant clauses and conditions of the agreement Ex. A-4 dated 18-4-1952 and Section 34 of the Arbitration Act.
1. The works shall be carried out in accordance with the directions and to the reasonable satisfaction of the Consulting Engineer in accordance with the signed drawings and specifications and bills of quantities and in accordance with such further drawings, details, instructions, directions and explanations as may from time to time be given by the Consulting Engineer. All materials and workmanship in respect of this contract shall conform to the latest Madras Details Standard Specifications of the P. W. D. unless otherwise specified in the bills of quantities.
If the work shown on any such further drawings or details necessary to comply with any such instructions, directions or explanations, be in the opinion of the contractor, extra to that comprised in the contract, he shall, before proceedings with such work give notice in writing to this effect to the Consulting Engineer. In the event of the Consulting Engineer and the contractor failing to agree as to whether or not there is any extra and of the Consulting Engineer deciding that the Contractor is to carry out the said work, the Contractor shall accordingly do so and the question whether or not there is any extra, and if so the amount thereof, shall, failing agreement, be settled by the Umpire as provided in clause 40, and the contractor shall be paid accordingly.
The contract drawings (shall be in the) custody of the Consulting Engineer and shall be produced by him at his office and when required by the employer or by the Contractor.
11. The Contractor shall, when authorised by the employer on the recommendation of the Consulting Engineer, or as provided by clause 4, vary by way of extra or omission from the drawings or specification or bills of quantities; such authorisation is to be sufficiently proved by any writing or drawing signed by the employer or by any subsequent written approval of the employer but the contractor shall make no variation without such authorisation.
No claim for an extra shall be allowed unless it shall have been executed under the provisions of Cl. 4, or by the authority of the employer as herein mentioned. Any such extra is hereinafter referred to as an authorised extra.
15. The Consulting Engineer shall, during the progress of the works, have power to order in writing from time to time the removal from the works, within such reasonable time or times as may be specified in the order, of any materials which in the opinion of the Consulting Engineer are not in accordance with the specification, description in the bills of quantities, or the instructions of the Consulting Engineer, the substitution of proper materials and the removal and proper re-execution of any work executed with materials or, workmanship not in accordance with the specification or instructions; and the Contractor shall forthwith carry out such order at his own cost................"
24. (a) XX XX XX
24. (b) XX XX XX
The terms complete the work shall mean substantially completed in the opinion of the Consulting Engineer to the extent of permitting the buildings being brought into beneficial occupation by the employer.
34. Within two calendar months from the completion of the work the Contractor shall deliver to the Consulting Engineer a full account in detail of all claims which he may then have against the employer in respect of the works or in any manner incidental thereto. Such account shall be in duplicate and shall be prepared so as to conform with the various items of the bills of quantities.
40. In case any dispute or difference shall arise between the employer or the Consulting Engineer on his behalf and the contractor.... as to the construction of the contract, or as to any matter or thing arising thereunder........ (except as to the matters left to the sole discretion of the Consulting Engineer under Cls. 3, 8 and 15 and the exercise by him under Cl. 17 of the right to have any work opened up) or as to the withholding by the Consulting Engineer of any certificate which the Contractor may claim to be entitled, then either party shall forthwith give to the other notice of such dispute or difference, and such dispute or difference shall be referred to arbitration for final decision. Each party shall nominate one arbitrator and the arbitrators so nominated by the parties shall together appoint Umpire, and the decision of such an Umpire shall be final and binding on the parties, and the place of such arbitration shall be Madras." Section 34 : -
"Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceeding, apply to the judicial authority before which the proceedings are pending to stay the proceedings; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings."
7. In so far as the appellants suit is concerned, it is in respect of a matter which the parties have agreed to refer and which comes within the ambit of the arbitration agreement. The suit is based on a contract between the parties, the dispute being one relating to the amount due from the appellant to the respondent under the contract. This is clearly covered by Cl. 40, under which both the parties have agreed to submit disputes arising under the contract to arbitration.
Section 34 of the Arbitration Act clearly authorises the respondent to apply to the Court for staying of the proceedings in such a suit and the Court is empowered to stay proceedings if it is satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration.
It is alleged that the reference by the respondent of the matter in dispute not being covered by any of the terms of the contract and being outside it, cannot be deemed to be under Cl. 40 and in any case if the claim is made under any of the terms of the agreement, the condition precedent specified therein has not been fulfilled, and that all these constitute a reason for the Court not to stay the proceedings and to grant an injunction against the respondent not to proceed with the arbitration. As has been already noticed the respondent is claiming amounts for work done under the building contract. It is not denied that the work has been done but only the extra lead for sand and stone was not authorised under the terms of the agreement.
8. Under Cl. 40 except matters coming under Cls. 3, 8 and 15 which relate to the matters left to the sole discretion of the Consulting Engineer and the exercise by him under Cl. 17, the right to have any work opened, any dispute or differences between the employer and the Consulting Engineer on his behalf and the Contractor arising during the progress of the work or after abandonment or breach of the contract pertaining to the construction or as to the matter or thing arising thereunder or to the withholding by the Consulting Engineer of any certificate which the contractor is entitled to are referable to arbitration.
The time at which the parties are entitled to refer to arbitration, however, except in the case of issue of certificates, shall be only after the completion or alleged completion of the work.
The reference can be made earlier than the completion of the work, if it is so desired by written consent of employer and Consulting Engineer and the Contractor. It is contended by the appellant that when the reference was made the works were not completed and consequently the reference is premature. Whatever be the significance of the word alleged completion in Cl. 40, the term complete the work has been defined in Cl. 24 to mean substantially completed in the opinion of the Consulting Engineer to the extent of permitting the building being brought into beneficial occupation by the employer. In para 7 of the plaint the appellant has stated categorically thus :
"........By about December, 1953, the buildings were completed to an extent that made it possible for the plaintiff to occupy them, though considerable work remained to be done to bring them to finished condition. On 23rd December, 1953 possession had been taken and the plaintiff commenced its business in the Spinning Mills."
Having regard to this admission, the reference to the arbitration cannot be held to be premature.
9. In so far as clauses 3 and 8 are concerned, they admittedly have no application to the facts of the case. With respect to the application of clause 15, the contention of the learned advocate for the appellant was that as the contractors case was that the Consulting Engineer had rejected the materials which were to be used in pursuance of the terms of the agreement and as a result of the directions of the Consulting Engineer, there was a violation of the contract, and it would be a case which will be within the ambit of the clause, which vests discretion in the Consulting Engineer to reject any materials which, in his opinion do not conform to the bills of quantity or specifications.
Since the matter is one which is within the sole discretion of the Consulting Engineer, it is excluded from the purview of the arbitration clause. Learned advocate for the respondent counters this and says that there was no rejection of materials on the ground that they did not conform to the specifications, that the discretion of the Consulting Engineer has not been questioned and that the claim is only for payment of extra sum. In other words, where the materials used are not in conformity with the descriptions in the bills of quantities, clause 15 will be attracted.
The case does not appear to be one of rejection of materials but one where the respondent is claiming on the basis of an unauthorised extra. In the same way as clause 15, clauses 4 and 11 also provide for a variation of the work on the authorisation of the Consulting Engineer and the procedure required to be followed by the Contractor and the manner in which the extra cost is to be arrived at and paid for. It is admitted that Cl. 4 has no relevance to the allegations in this case.
10. Under Cl. 1 the substitution of materials to those specified in the bills of quantities is authorised, if the Consulting Engineer so directs. But this, however, is subject to a condition that where in the opinion of the contractor he is asked to do anything extra to that comprised in the contract, he is required to give notice to this effect to the Consulting Engineer before proceeding with such work. If he and the Consulting Engineer do not agree as to whether the work required to be done is extra and the Consulting Engineer decides that the contractor has to carry out the work, he is accordingly required to do so and the question whether or not there is any extra and if so the amount thereof, is to be settled by the Umpire under Cl. 40.
It is contended by the learned advocate for the appellant that no such notice in writing has been given by the respondent and consequently this clause will not apply and the respondent cannot claim thereunder. No doubt Cl. 40 must be read subject to Cl. 1 and the question is whether Cl. 1 is attracted by the facts of the case. Similarly the application of Cls. 11 and 34 is dependent on the facts of the case. In the former case the question would be whether the respondent was authorised by the appellant on the recommendation of the Consulting Engineer to vary by way of extra the bills of quantities.
Such authorisation has to be sufficiently proved by any writing signed by the employer or by any subsequent written approval of the employer. This clause further inhibits the contractor from making any such variation without authorisation, nor will any claim be allowed unless it has been executed by the authority of the employer as mentioned above. With respect to the applicability of the latter, viz., Cl. 34, the question whether the condition precedent of having to deliver the final bill to the Consulting Engineer within two months of the completion of the work under the said clause, has not been complied with, has to toe determined having regard to the allegation of the respondent that he has complied with this condition. The respondent invites a reference to a letter dated 18-10-1954 to show that he submitted his final till on his being invited to do so by a letter of 3-10-1954 of the Consulting Engineer.
11. The learned Advocate for the appellant has cited the case of Franklin v. Dark (1862) 6 LT 291 (A) and Lawson v. Wallasey Local Board, (1882) 47 LT 625 (B) and in appeal in Lawson v. Wallasey Local Board, (1883) 48 LT 507 (C), and also certain passages from Hudson on Building Contracts, 7th edition page 540 and Halsburys Laws of England, Vol. in, page 481. In the former case it was held that where in a builders contract it was stipulated that any order given for extras shall also be in writing, there must be something beyond any order, i.e. verbal order, to entitle a person to obtain payment. The two latter cases deal with the authority of the Engineer to bind the defendant by entering into a contract.
The plaintiff in that case was claiming damages on account of the non-removal of certain temporary staging erected on the site of work by the due date. Under one of the clauses of the contract it was provided that if any difference should arise between the Local Board and the Contractor concerning the work or concerning anything in connection with the contract, such differences wereto be referred to the Engineer and his decision was final and binding on the parties. It was held that it was not a difference, concerning a matter in connection with the contract and as to which the decision of the Engineer was conclusive.
These cases were decided on the particular facts found and they cannot be of assistance in determining the question as to whether any particular clauses of the contract are attracted in the circumstances of this particular case. The case cited in Hudson is not relevant as the terms were quite different to those found in the agreement before us. The passage in Halsbury deals with the imposition of conditions precedent for payment of extras in building contracts. It says :
"This condition being a limitation on the powers of the architect, cannot be waived by him, though his power to give a final conclusive certificate may override the limitation and the contractor is not entitled as against the employer to rely on any implied authority of the architect or on any representation by him of parol authority to order such extras. The contractor cannot obtain relief from such a stipulation in the contract, nor can he get a decree for an account of extras not ordered in the prescribed manner."As a proposition of law the statement is unexceptionable, but the difficulty in this case has been that the arguments are advanced as if the facts upon which they depend have already been proved.
12. Therefore the only question in the case would be whether the claim of the respondent is a dispute which is covered by the arbitration clause, that is, is it involving the construction of the contractor, or the determination of any matter or thing arising thereunder. The submission to arbitration being governed by a written contract, the terms of that contract must be looked into when a question arises as to whether the arbitration clause governs the dispute. Arbitration clauses, as is well-known, very widely in their language because they incorporate the desire of the parties to refer to arbitration such matters as they please.
Recourse therefore must be had to the language used to determine whether the clause embraces any question which may arise between the parties in any way relating to the contract. If the dispute is that the contract, which contains the clause, had not been executed or entered into at all or where one of the parties contends that it is void ab initio or that it is illegal, the arbitration clause cannot operate, nor can an issue go before an arbitration.
Where, however, the parties to a contract do not dispute the validity or the execution of the agreement and admit having entered into a binding contract, but contend that that contract does not govern the dispute, the terms of the agreement will have to be looked into in order to determine whether the arbitration clause governs the dispute or not. It is equally clear that if the matter is one which relates to an agreement which is separate and apart from the admitted agreement containing the arbitration clause, recourse cannot be had to arbitration for the settlement of the dispute which does not arise thereunder.
Where, as in this case, one of the parties claims to recover some amounts under the agreement and other party denies and negatives this claim as not arising under the terms of the agreement or as not complying with the condition precedent to the making of a claim specified in the terms of the agreement, the arbitration clause would ex facie become applicable. As Lord Porter in his speech in Heyman v. Darwins, Ltd., (1942) AC 356 at p. 398 (D), tersely puts it :
"Where, however, the existence of the contract is acknowledged but one of its terms is relied on as disentitling the claimant to recover, the arbitration clause is effective."In Scott and Sons Ld. v. Del Sel, (1923 SC (HL) 37) (E), the arbitration clause ran : Any dispute that may arise under this contract to be settled by arbitration.
There the sellers of jute contended that a contract to export from Calcutta certain bales to Buenos Ayres was brought to an end after a portion had been dispatched, by a Government prohibition of further export and it was argued that the dispute as to frustration was not a dispute under the contract, but a dispute as to the existence of the contract. Lord Dunedin giving the reasons for the rejection of this contention observed at page 41 :
"They (the sellers) can only succeed......if they bring themselves within one of two categories. Either they must show that there was an express term of the contract which had that effect, or they must show that there was an implied term in the contract which had the same effect .......... It seems to me, therefore, that they are in this dilemma, that in either view they have got to have recourse to the contract, and, if they have got to have recourse to the contract, it seems to me that the dispute is a dispute under the contract."
Similarly Lord Reading, C. J. in Stebbing v. Liverpool. London and Glob Insurance Co., Ltd., 1917-2 KB 433 (P), observed at page 436 :
"........the Phrase avoiding the policy is loosely used........In truth the company is relying upon a term of the policy which prevents the claimant from recovering........If they succeed in escaping liability, that is by reason of one of the clauses in the policy."
The observations of Lord Dunedin and Lord Reading, C. J. were referred to with approval by Viscount Simon, Lord Porter and Lord Wright in the above referred case of (1942) AC 356 (D). Viscount Simon at p. 366 spoke thus :
"........But, in a situation where the parties are at one in asserting that they entered into a binding contract, but a difference has arisen between them whether there has been a breach by one side or the other, or whether circumstances have arisen which have discharged one or both parties from further performance, such differences should be regarded as differences which have arisen in respect of, or with regard to or under the contract, and an arbitration clause which uses these or similar expressions should be construed accordingly."
Whether a dispute falls within an arbitration clause in a contract, as Viscount Simon put it, must depend on what is the dispute and what disputes the arbitration clause covers. In Heymans case (D) the arbitration clause was comprehensive and covered the dispute between the parties in respect of the agreement, or in respect of any provision in the agreement, or in respect of anything arising out of it. Mahajan, J. (as he then was) delivering the judgment of the Supreme Court in Gaya Electric Supply Co. Ltd., v. State of Bihar, 1953 SCR 572 : (AIR 1953 SC 182) (G) after referring with approval to the observations of Viscount Simon in Heymans case (D) and the comprehensiveness of the language used in the arbitration clause, observed thus at p 578 (of SCR) : (at p 184 of AIR) : -
......Where, however, the party seeks to avoid the contract for reasons de hors it, the arbitration clause cannot be resorted to as it goes along with other terms of the contract. In other words, a party cannot rely on a term of the contract to repudiate it and still say the arbitration clause should not apply. If he relies upon a contract, he must rely on it, for all purposes. Where, however, an arbitration clause is not so comprehensive and is not drafted in the broad language which was used in the House of Lords case, namely, in respect of any agreement or in respect of something arising out of it, that proposition does not hold good. The arbitration clause is a written submission agreed to by the parties in a contract and like every written submission to arbitration must be considered according to its language and in the light of the circumstances in which it is made.
" In that case disputes arose between the State of Bihar and the Electric Supply Co. whose licence had been revoked by the State and were settled by an agreement which provided that the State should make an advance payment of five lakhs to the company and the company should hand over the"undertaking to the State. The undertaking was to be valued within three months and if any money was found due to the company as per the Government valuation over five lakhs, it will be paid to the company and if the valuation was less than five lakhs the company would refund the excess received by it.
The agreement contained an arbitration clause. The company instituted a suit against the State alleging that the State had failed to make its valuation and to make payment of the excess within the time fixed and as time was of the essence of the contract, it had rescinded the agreement and prayed for a declaration that the undertaking belonged to it for damages and appointment of a receiver. The State applied under S. 34 of the Arbitration Act for stay of the suit. The High Court of Patna had held that no stipulation was made that the compensation money would be paid within three months and that on the contrary the intention of the parties was that the Government would pay the money only after the award had been made by the arbitrator. The arbitration clause was that
"in the case of any difference or dispute between the parties over the valuation as arrived at by the Government and that arrived at by the company, such difference or dispute including the claim for additional compensation of 20% shall be referred to arbitration.
In holding that the scope of the arbitration clause was very narrow and conferred on the arbitrator a limited jurisdiction, that the questions relating to the breach of the contract or its recision were outside the scope of the clause and that the suit should not be stayed under S. 34 of the Arbitration Act, it was observed at P 580 (of SCR) : (at p 185 of AIR) as follows : -
".......The only point in such cases to be decided is whether the claim which is brought whether it is good, bad or indifferent comes within the submission to arbitration. It may be that there are grounds upon which the defendant would be able to satisfy the proper tribunal that the plaintiffs claim was frivolous and vexatious, but those considerations, as pointed out by Banks L.J. in Monro. Bognor Urban Council. 1915-3 KB 167 (H) are material only if the question to be considered is whether the case made was a frivolous and vexatious one and ought to have had no weight at all upon the question of what the plaintiffs claim in fact was and one can only find out what his claim is by looking at the plaint."The observations of Fazl Ali J. in A. M. Mair and Co. v. Gordhandass Sagar Mull, 1950 SCR 792 at p 797 : ( AIR 1951 SC 9 at pp 10-11) (I) are also to the same effect. What has to be determined in this case, irrespective of the validity of the claim and the counter claim of the parties, be it untenable, frivolous or vexatious, is whether the dispute is one which involves the interpretation of the contract or which arises thereunder. It will be deemed to arise under the contract for the purposes of the arbitration clause if recourse is had to the terms of the contract itself, as negativing the claim of the respondent or as establishing the claim of the appellant.
13. Applying the above principles it is clear that the appellant relies upon the several clauses of the agreement, particularly Cl. 1 as negativing the claim of the respondent, while the respondent also relies on some of these provisions. In these circumstances the arbitration clause would certainly govern, irrespective of the fact whether the case of the respondent is tenable or not. The question whether the claim would be valid under any of the clauses, the conditions prescribed thereunder having been fulfilled, would depend upon whether the clause is attracted by the facts of the case which have to be determined by the arbitrator. The arbitration clause would, upon this view, certainly govern the dispute between the parties.
14. It is again argued that the Court should refuse to stay the suit on the ground that there are allegations of fraud and that the points of law involved are difficult and it would not be proper to leave them to the arbitrator to determine them as these points are bound to come back by way of a special case to it to be decided. The English Arbitration Act, 1934 provides statutory exception in cases where there are charges of personal misconduct, fraud etc. Section 14 (2) enacts that where the dispute which has arisen involves the question whether a party to the arbitration agreement has been guilty of fraud, the Court shall, so far as necessary to enable that question to be determined by the Court, have power to give leave to revoke any submission made thereunder.
This provision has not been adopted in the Indian Arbitration Act, but from authorities decided before the date of the Arbitration Act of 1934, it is established that if the party charged with fraud desires to have the matter to be investigated by a Court, ordinarily this will be allowed to be done by refusing stay of the suit. See Green v. Howell, 1910-1 Ch. 495 (J). It seems to be clear that if charges of fraud have been raised in such a manner that it would be necessary for the arbitrator to investigate them, then the party charged with fraud should be allowed to have that done in the open court, which will be the consequence of refusing stay of suit.
These principles would apply in refusing stay of proceedings under S. 34, because a party to the arbitration agreement is not as of right entitled to the stay of proceedings and the question whether or not the Court shall exercise the power given to it under S. 34 of the Arbitration Act is entirely one of discretion though that discretion is undoubtedly to be exercised judicially. In doing so it will consider the question whether it should refuse stay in a case where allegations of fraud have been made and whether the party against whom they are made desires them to be investigated or enquired into in open Court. In Anglo Persian Oil Co. v. Panchapakesa Iyer ILR 47 Mad 164 : (AIR 1924 Mad 336) (K), it has been held that there are certain well-defined instances where the Court generally refused to stay such as where there are allegations of fraud, or where the point involved is a novel or a difficult one, etc. 15.The allegation of fraud, according to the learned advocate for the appellant, is that the respondent imputed to two very high officers the charge that they had verbally authorised him to bring sand and stone from a different place involving a longer lead and had promised to settle the increased rate which these officers have denied. This, according to him, is tantamount to imputation of fraud. In our view this is a far-fetched argument.
If this is accepted, every allegation made in the pleadings by one party and denied by the other party to be determined as a fact, would involve a question of fraud. Fraud generally connotes a deception deliberately practiced to gain some unlawful or unfair advantage and is directed to the detriment of another. It is defined differently in different acts. There is no allegation of any deception here, nor any imputation against the character or integrity of any of the persons and consequently no question of fraud would arise.
16.With respect to the argument that the reference may involve the determination of legal points by the arbitrator when an agreement by the parties has deliberately vested determination of such question also, there is no reason why it should not be left to the arbitrator to decide. As we have already stated, this is a matter of discretion which should be judicially exercised. It has to be remembered, however, that in India the arbitrator cannot be compelled to state a case as in England under the Arbitration Act, and consequently the basis of some of the English decisions that the case is bound to come to the Court as special case stated would be inapplicable. The law before the Arbitration Act, 1889 has been stated in Halsburys Laws of England, Vol. 2, Page 27. (Simonds edition) :
"Before the Arbitration Act, 1889, came into force, it was laid down in a number of cases that the fact that the matter at issue between the parties was merely a question of law was not a sufficient reason for refusing a stay, because if the parties instead of resorting to the ordinary courts, agreed to submit their dispute to a domestic tribunal of their own choosing, it was prima facie the duty of the Court to give effect to their agreement."
Even after the Arbitration Act of 1889, there are cases such as in Lock v. Army, Navy and General Assurance Association, (1915) 31 TLR 297 (L), where the sole and main question has been a question of law, the Court stayed the suit, while in other cases such as in Lyon v. Johnson 1889-40 Ch. D. 579 (M), where the dispute was with regard to the construction of a partnership agreement between doctors, the Court refused to stay the proceedings as it was of the view that the disputes were such that they should better be decided by the Court than by arbitrators.
17.The disputes which the parties have agreed to refer under the arbitration clause involved the construction of the terms of the contract and it will be for the parties to nominate such arbitrators who are competent and experienced to decide such questions. We do not consider, in the circumstances of this case, that the discretion exercised by the lower Court should be interfered with.
18. For the above reasons we think these appeals should be dismissed and are hereby dismissed with costs. Advocates fee one set. Time for the submission of the award shall hitherto stand extended by four months from to-day.
Appeals dismissed.
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