Bhat, J.:— This is an appeal against the order of Ali, J. dated 1st June, 1962 whereby he refused under Section 34 of the Arbitration Act, to stay the suit for injunction restraining the defendant, the Union of India, from recovering Rs. 35210.21 from the plaintiff and for a decree of Rs. 10,000 in favour of the plaintiff against the Union of India.

2. The facts giving rise to this appeal are as follows. The plaintiff firm entered into a contract dated 25-2-58 with the Union of India for supply of ice machine made at Jammu for the period 1-4-58 to 30-9-58. The plaintiff had to supply 5,00,000 lbs. of ice ex-factory @ Rs. 1-72 per 100 lbs. and 20,00,000 lbs. at FSD @ Rs. 1-93 per 100 lbs. The plaintiff did not make the requisite supply whereupon the Union of India, the other contracting party, made risk purchases at the cost of the plaintiff. When differences arose between the parties to the contract, the plaintiff filed an application, under Section 20 of the Arbitration Act on 13-3-59 which was heard by the Addl. District Judge Jammu, requesting for a reference to arbitration of the dispute between the parties. This application was opposed by the Union of India, but ultimately the Addl. District Judge by his order dated 2-5-60 ordered that the matter be referred to arbitration. The matter stood there. The parties entered into a new agreement of arbitration on 29-7-60 and that agreement of arbitration referred the matters in dispute between the parties to the arbitration of GOC XV Corps, Major General P.C Gupta who called upon the parties to file their statement of cases. The arbitrator entered on this reference on 4-10-60 and gave his award on 16-12-60, directing the plaintiff to pay Rs. 26954.39 to the Union of India. This award came up for consideration before this Court but this Court by its order dated 8-1-62 set aside the award. On 9th January, 1962 the plaintiff brought the present suit for injunction and recovery of Rs. 10,000 as already stated. In this suit an application under Section 34 of the Arbitration Act was made by the Union of India on 14-4-62 which was heard by Ali, J. After bearing the arguments of the parties the learned Judge rejected this application of the Union of India for stay of the suit in terms of Section 34 of the Act Against this order the present appeal has been filed.

3. Ali, J. has rejected the application on the ground that the present dispute between the parties was not covered by clause 21-(a) of IAFZ 2120, as this matter of risk purchase was a matter settlement of which was clearly provided for in cls. 7 and 10 of the contract and cl. 21-(a) would apply to only ‘such disputes or differences arising in the interpretation or application of the provisions of contract, settlement of which is not herein before provided for’. His Lordship has further held that

“even if the other part of the relief of the plaintiff, namely, the question of recovery of Rs. 10,000 for damages be covered by the arbitration clause, it would not be expedient in the interest of justice to refer the dispute piecemeal to arbitration………”

4. The learned Judge has repelled the contention of the learned Advocate General that the parties had referred the matter to arbitration by means of the agreement dated 29-7-60 on the ground that the previous agreement was of a general nature between the parties to refer the matter to arbitration and that too on the assumption that such a dispute was covered by clause (21) of the contract.

5. It has been argued before us — and we are conscious of the fact — that when once a discretion has been exercised by a Court seized of a case in granting or refusing stay u/s. 34 of the Arbitration Act the appellate Court should not ordinarily interfere. This point has been discussed in many an authority and they may be cited as under:

Kedarnath Babulal v. Sumpatram Doogur*, 60 Ind Cas 951 : ILR 47 Cal 1020 : (AIR 1920 Cal 795):

6. In Ghewarchand v. Shiva Jute Bailing Ltd., AIR 1950 Cal 568 however it has been laid down:

“No doubt the making of an order staying proceedings is a matter largely in the discretion of the Court, but where a strong case is made, not only has the Court of appeal or the Court sitting in revision jurisdiction to interfere but ought to do so.”

7. The question recently came up before the Supreme Court in Printers (Mysore) Private, Ltd. v. Pothan Joseph , AIR 1960 SC 1156 wherein it has been laid down:

“The power to stay legal proceedings under S. 34 is discretionary, and so a party to an arbitration agreement against whom legal proceedings have been commenced cannot, by relying on the arbitration agreement, claim the stay of legal proceedings instituted in a Court, as a matter of right. However, the discretion vested in the Court must be properly and judicially exercised. Ordinarily the Court would direct the parties to go before the tribunal of their choice and stay the legal proceedings instituted before it by one of them. It would be difficult, and it is indeed inexpedient, to lay down any inflexible rules which should govern the exercise of the said discretion.

It is ordinarily not open to the appellate Court to substitute its own exercise of discretion for that of the trial judge; but if it appears to the appellate Court that in exercising its discretion the trial Court has acted unreasonably or capriciously or has ignored relevant facts and has adopted an unjudicial approach then it would certainly be open to the appellate Court and in many cases it may be its duty to interfere with the trial Court's exercise of discretion. In cases falling under this class the exercise of discretion by the trial Court is in law wrongful and improper and that would certainly justify and call for interference from the appellate Court.”

8. The second cardinal principle that the Court has to keep in view is that where there is an arbitration clause in a contract the stay of proceedings in a civil suit brought about by matters pertaining to an agreement is the more expedient and proper course to follow. See Union of India v. Narayan Cold Storage Ltd., Amritsar, AIR 1958 Punj 24, Murlimal Santram v. Banarsidas and Sons, AIR 1935 Sind 62, Charan Das v. Gursaran Das Kapur, AIR 1945 All 146 and Manindra Chandra Nandy v. H.V Low and Co., AIR 1924 Cal 796. These two important principles of law have to be kept in view while disposing of this appeal.

9. In this appeal the learned Advocate General has argued that the Court of the Addl. District Judge had ordered that the matter be referred to arbitration but on 29-7-60 a fresh agreement of arbitration between the parties had been executed whereby the GOC XV Corps was appointed the sole arbitrator for the differences and disputes arising out of the contract of 25th February, 1958. The award of the arbitrator was set aside by this Court on 8-1-62, but under Section 19 of the Arbitration Act unless the reference was superseded the original agreement of arbitration would remain intact and the arbitrator would be properly seized of the arbitration proceedings before him. For this proposition of law the learned Advocate General referred to the following authorities: Morgan Walker and Co. v. Khardah Co. Ltd., AIR 1959 Cal 169; Rallies India Ltd. v. B.V Manickam Chetti and Co., AIR 1956 Mad 369; Gulab Rai Girdhari Lal Firm v. Firm Bansilal Hansraj, AIR 1959 Pun 102 and Union of India v. S.S Samal, AIR 1961 Orissa 88.

10. In AIR 1959 Cal 169 it has been held that

“where after the award was set aside by the Court the reference was not superseded, the result was that the arbitrator remained in seizin of the reference and the arbitration agreement continued to subsist…………”

11. In that case the parties who had originally made a reference addressed a further communication to the arbitrator asking for arbitration and an award. It was held that

“the communication was not a fresh reference but for further arbitration on the reference which was already made and which was still pending. Since the original reference had not been superseded, there could be no second reference of the same dispute and there was no need of any.”

12. In AIR 1956 Mad 369 it was held by a Division Bench of that Court consisting of Rajamannar, C.J and Panchapakesa Ayer, J. that

“so long as the Judge did not supersede the arbitration agreement, it must be presumed that the arbitration agreement is subsisting. Therefore the contention that once the award was set aside the parties could no longer resort to the arbitration clause cannot be accepted.”

13. In AIR 1959 Punj 102 a Division Bench, of the Punjab High Court consisting of Bhandari, C.J and S.S Dulat, J. laid down:

“The word ‘may’ in S. 19 is a word of permission rather than of command, S. 19 thus confers full discretion on the Court to say in each particular case whether the reference should or should not be superseded. When a Court making an order under this section does not expressly supersede the reference and direct that the arbitration agreement shall cease to have effect, it must be deemed to have declined to exercise the power. In this respect it differs from Paragraph 15(2) of the Second Schedule to the CPC which declared that where an award becomes void or is set aside, the Court shall make an order superseding the arbitration.”

14. In AIR 1961 Orissa 88 it has been held:

“It is clear from S. 19 that the setting aside of an award does not by itself, terminate the reference except where the award is set aside on a finding that the reference itself was invalid. In other cases, that is, where the reference is valid and only the award is bad, after the award is set aside, the reference has to be superseded by a further order, if it is desired to terminate it. If there is no order of supersession, the reference and the agreement both survive……………”

15. This proposition of law was not seriously contended by the learned counsel for the respondent. The conclusion that can be drawn from the above facts is that the parties of their own free will referred all the matters in dispute between them arising out of the contract of 25-2-58 to the arbitration of the GOC XV Corps. What those matters in controversy were are substantially and even literally the same as are the subject-matter of the present suit. At the time of entering into the new agreement, neither party made any reservation and the entire dispute between them which arose out of the contract of 25-2-58 was referred to arbitration. A perusal of the statement of cases put in before the arbitrator by both parties to the reference clearly shows that the matters that, are to be decided by the Court in the suit the plaintiff instituted on 9-1-62 are the same as were stated by the plaintiff in the statement of cases before the arbitrator. The argument of the learned trial judge that the previous agreement for arbitration was a general agreement between the parties to refer the matter to arbitration and that too on the assumption that such a dispute was covered by clause (21) of the contract does not appear to be correct as the parties voluntarily agreed to abide by the decision of the arbitrator namely, the GOC XV Corps on all matters in dispute between them arising out of the contract for the supply of ice by the plaintiff to the Union of India, the parties or any one of them cannot now wriggle out of the contract which they solemnly entered into on 29-7-60. The agreement of arbitration stands and is not at all revoked by the award being set aside. This would be a short disposal of the matter, and it appears that this aspect of the case has not been seriously pressed before the learned trial Judge.

16. Section 34 of the Arbitration Act corresponds to Section 2 of the English Arbitration Act of 1950 and in Halsbury's Laws of England Vol. 2 (3rd edn.) at page 21 it is laid down as under:

“If any party to an arbitration agreement, or any person claiming through or under him, commences any legal proceedings in any Court against any other party to the agreement, or any person claiming through or under him, in respect of any matter agreed to be referred, any party to those legal proceedings may at any time after appearance and before delivering any pleadings or taking any other steps in the proceedings, apply to that Court to stay the proceedings, and that Court or judge thereof, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the 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, may make an order staying the proceedings.

In all instances, except that mentioned in the following paragraph the exercise of the jurisdiction is one for the discretion of the Court, but if the conditions laid down in the section are fulfilled, the Court will seldom refuse a stay.”

17. The grounds for refusing stay are givers in Section 3 which can be summarised as under:

(1) Where the circumstances are such that the Court would have granted leave to revoke the arbitrator's authority on an application made to it, the application for stay would be refused.

(2) If the Court is satisfied that there is good ground for apprehending that the arbitrator would not act fairly in the matter.

(3) Where all the persons expected to join the reference have not done so; the fact that the matter in dispute involves a charge of fraud against one of the parties may in certain circumstances induce the Court to refuse to stay the proceedings.

(4) The expense of arbitration proceedings is an insufficient ground for refusing stay. Because some complicated questions of law have to be determined by the arbitrator is ordinarily not a sufficient ground for stay of the proceedings.

(5) Where a small part of the matters which are the subject of the legal proceedings is not included in the arbitration agreement and other matters are within the scope of the arbitration agreement, stay will not be refused.

18. Section 34 of the Indian Arbitration Act, as already stated, is analogous to Section 2 of the English Arbitration Act of 1950. What are the requirements of this Section have been elaborately laid down in Anderson Wright Ltd. v. Moran, (S) AIR 1955 SC 53 and have also been mentioned by Ali, J. in his order under appeal on page 2 of the same. It has been held that in order that a stay may be granted under S. 34 it is necessary that the following conditions should be fulfilled:

(1) The proceedings must have been commenced by a party to an arbitration agreement against any other party to the agreement.

(2) The legal proceeding which is sought to be stayed must be in respect of a matter agreed to be referred.

(3) The applicant for stay must be a party to the legal proceeding and he must have taken no step in the proceeding after appearance. It is also necessary that he should satisfy the Court not only that he is but also was at the commencement of the proceedings ready and willing to do everything necessary for the proper conduct of the arbitration; and

(4) the Court must be satisfied that there is no sufficient reason why the matter should not be referred to an arbitration in accordance with the arbitration agreement.

19. Keeping the principle of the English Law on the subject and those laid down by the S.C in view and for purposes of determining whether these tests are fulfilled, we have to consider whether the claim brought in the suit sought to be stayed comes within the submission to arbitration. We cannot go into the validity of that claim in proceedings under that section. (See Gaya Electric Co. Ltd. v. State of Bihar, AIR 1953 SC 182). With this background it is clear that there can be no dispute about conditions (1) and (3) of the S.C case. Condition No. 2 relates to the subject-matter of the dispute in this case. The parties by means of an agreement decided to refer all the disputes and differences arising out of the contract of 25th day of February 1958 for supply of ice machine-made at Jammu for the period 1-4-58 to 30-9-58 to the sole arbitration of the GOC XV Corps. The statement of cases before the arbitrator clearly shows that the substance of the present suit of the plaintiff is the same as the statement of case filed by him before the arbitrator.

20. About condition No. (4) much need not be said because the order of this Court dated 8th January, 1962 kept the original agreement of 29-7-60 intact and the arbitrator legally remained seized of the case. In view of the authorities cited above that ordinarily parties should be made to get their cases decided by a forum of their choice, the arbitrator, rather than by a Court of law in cases where there is a valid agreement for arbitration, there is no ground made out by the plaintiff why stay of the suit should not be granted and the parties directed to get their disputes settled by the arbitrator. It may incidentally be remarked here that it has been stated at the bar that the previous arbitrator Major General P.C Gupta has now been transferred and has been succeeded by another gentleman. Reference to arbitration has been refused where there were matters outside the arbitration agreement or where fraud, falsification of documents or forgery by a party, was alleged or where the claim of the plaintiff was based on matters foreign to the original agreement. In this connection the following authorities may be noticed: AIR 1935 Sind 62, Sudhangsu Bhattacharjee… v. Ruplekha Pictures…., AIR 1954 Cal 281, Abdul Quddoos Dost Mohammad Momin v. Abdul Gani Abdul Rahman, AIR 1954 Nag 332 etc.

21. But in this case we find that the subject-matter of the dispute between the parties is based on the claims and the counterclaim arising out of the agreement. Even if a small portion of the claim of the plaintiff is outside the terms of the original contract, that by itself is no ground for refusing stay. We are, therefore, satisfied that the defendant, Union of India, has made out a clear case for stay of the suit and for this reason we cannot uphold the order of our brother Ali, J.

22. The result is that this appeal succeeds and the suit instituted by the plaintiff against the respondent, Union of India, in the Court of Ali, J. shall be stayed in terms of Section 34 of the Arbitration Act. There will be no order as to costs in this Court.

23. J.N Wazir, C.J:— I agree.

HG/D.H.Z

24. Appeal allowed.