Chatterjee, J.:— This is an appeal from a judgment and order of Sinha, J. whereby he stayed a suit under s. 34 of the Indian Arbitration Act.
There was a contract between the parties whereby Kesoram Cotton Mills, Ltd., the respondent, sold to the appellant, Kedarnath. Atmaram, eleven bales of piece-goods. The respondent's case is that the appellant took delivery of only seven bales but failed and neglected to take delivery of the balance, four bales. There is an arbitration clause in the contract in very wide terms. As good deal of argument has been advanced by the learned counsel for the appellant, Mr. Surita, on the validity of the arbitration agreement, the relevant clause providing for arbitration, being clause No. 28 of the contract, is set out hereunder:—
All matters, questions, disputes, differences and/or claims arising in connection with and/or claim or claims arising out of and/or concerning and/or in connection, with and/or in consequence of or relating to this contract, whether or not the obligation of either or both parties under this contract be subsisting at the time of such dispute and whether or not this contract has been terminated or varied or purported to be terminated or varied shall, at the option of the Mills, be referred to the arbitration of the Indian Chamber of Commerce, under the rules of its Tribunal of Arbitration for the time being in force.
According to the respondent company, it resold the goods by public auction on July 2, 1948, on the buyer's account and risk and thereupon demanded payment of Rs. 1,967-10-6, being the damage suffered on such re-sale. On the appellant failing to pay the same, the respondent referred the disputes to the Tribunal of Arbitration, Indian Chamber of Commerce.
Thereafter this suit was instituted by the appellant and the main reliefs claimed are: (a) a declaration that the contract dated May 4, 1948, is invalid, null and void, (b) injunction and (c) suspension of the proceedings before the said Tribunal of Arbitration.
The main contention urged before us was that the contract in question was null and void, and, therefore, there was no arbitration agreement between the parties. Really there were two applications before Sinha, J. One was an application by the respondent for the stay of the suit and the other was by the appellant for an injunction restraining the respondent from proceeding with the arbitration. Both the applications were heard together by consent of the parties along with the suit and two issues of law were decided by the learned Judge:—
1. Whether the contract dated May 4, 1948, was null and void?
2. Even if there was a contract between the parties and the contract was not null and void, was there a valid arbitration agreement between the parties?
On both the issues the learned Judge held against the appellant. He held that the contract was not null and void and that there was a valid and binding arbitration agreement. According to him, the arbitration agreement remained in an inchoate and executory state till election was made by the mills and on the election being made both the parties are bound by the agreement and can enforce the same. It was urged by the appellant before the learned Judge that Messrs Birla Brothers, Ltd., were the managing agents of the respondent company and they had considerable influence over the Tribunal of Arbitration of the Indian Chamber of Commerce and, therefore, the discretion of the Court should be exercised against the stay of the suit. The learned Judge over-ruled this contention and ordered the stay of the suit.
Mr. Surita's argument on behalf of the appellant was directed mainly towards making out that the contract, dated May 4, 1948, was null and void, inasmuch as cl. 12 of the contract reserved to the respondent company the complete liberty or latitude to deliver or not to deliver the goods.
Clause 12 runs as follows:—
In the event of any delay or his drance in the fulfilment of this contract or any portion thereof or in the delivery or despatch of the goods or any portion thereof directly or indirectly caused by or due to any act of God, War, Enemy Action, Bombing, requisition or interference from Government or local authorities, riots, civil commotiuon, force majeure, lock-out, labour disturbance, trade disputes, strikes, fire, pestilence, damage or accident to the mills or their machinery, partial or total stoppage of the mills or the mills working short-time, scarcity or high price of raw materials or other prior or later commitments of the mills or (without limiting the meaning of any of the preceding words) any event or circumstances beyond the control of the mills whether in consequence of the aforesaid causes or not, the buyers will take delivery of such goods as the mills may deliver or despatch and in respect of the balance goods the mills will be entitled at their option to cancel the same or to extend the time for delivery or despatch from time to time up to such time as they require to make up for the delay or hindrance caused by any of the events or circumstances abovementioned. A certificate of a responsible officer of the mills of the existence and duration of the events and circumstances mentioned above and as to their causing the delay or hinderance and/or as to the requisite period of extension of time for delivery will be conclusive evidence thereof.
Mr. Surita also referred to some other clauses.
Clause 16 reserves the right to the respondent company to deliver defective or damaged goods provided they corresponded to the specified description. Under that clause, if there was any inferiority or deviation in quality, weight, colour, etc., the buyers would not be entitled to reject the goods, but will be entitled to only such allowance or compensation as is usually allowed by the mills in such cases.
Clause 17 provides for the reservation to the mill of the right to supply damaged or defective goods up to 5 per cent, in width, quality, colour, etc.
Clause 23 reserves to the respondent company he right to increase the price mentioned in the contract in the event of any increase in the cost of manufacture.
No doubt this contract is extremely one-sided and imposes conditions very unfavourable to the buyer and puts the respondent company in the dominant position. It is obvious that in such cases the mills have the whip-hand and they have been using their position to the detriment of the buyers. But, with the full knowledge of the relevant facts, the parties have entered into the contract. A one-sided contract, although extremely unfavourable to one of the parties, is still a valid and binding contract, unless the Court can find that there is no mutuality or that there is really no obligation upon one of the parties to fulfil his part of the contract.
Resting his argument principally on cl. 12, Mr. Surita has urged that it is really a contract which reserves to the seller complete liberty to deliver or not to deliver the goods. He has referred us to a passage from Leake on Contract, 8th Ed., p. 3, which reads as follows:—
An agreement as the source of a legal contract imports that one party shall be bound to some performance, which the other shall have a legal right to enforce. And the intention of the one party as to the performance, expressed to, and accepted by the other, for the purpose of creating the right, constitutes a promise. Promissory expressions reserving to the promiser an option as to the performance do not create a contract: as in cases of employment upon the terms of such remuneration as the employer thinks right to give; or upon the terms of being remunerated by a testamentary provision; or expressions of intention respecting settlements on marriage.
Mr. Surita has also drawn our attention to the case of Bengal Agency and Stores Syndicate v. T.N Khanna, where Ameer Ali, J. observed that an agreement of sale which reserves to the seller a complete liberty to deliver or not to deliver the goods is not a contract at all.
In the case before Ameer Ali, J., the buyers claimed damage for non-delivery of goods. The sellers pleaded cancellation of the contract for sale by mutual agreement and further contended that, in view of a clause in the contract, the seller was not liable, inasmuch as no stocks were available. The clause in the contract ran as follows:—
All goods are offered subject to stocks. Delivery times mentioned are subject to delays due to was strikes and/or other considerations beyond the defendant's control. Price subject to change without notice.
His Lordship held that there was a concluded and subsisting contract for the sale of the goods at a fixed price and the clause in question did not affect the terms of the contract and, in as much as the stocks were not available, the seller was not liable for damage on the breach of the contract. Ameer Ali, J. also relied on the passage from Leake on Contract. That no doubt is a correct statement of the law. An agreement reserving to the promisor an option as to the fulfilment thereof does not constitute a contract. Taylor v. Brewer. The question is: Does cl. 12 of the contract in this case reserve to the seller an option to fulfil the same? In our opinion, it does not. Having regard to the terms of the contract it cannot be said that it contains only “promissory expression reserving an option as to the performance.” Mr. Surita frankly conceded that he could not contend that the contract was void if the seller was excused from performance in the event of war, act of God, enemy action, not, trade disputes, strikes, stoppage of the mill, or scarcity or high price of raw materials. But he says that when cl. 12 provides further that the mills would be excused in the event of prior or later commitments of the mills or due to any event or circumstance beyond the control of the mills, the contract is null and void. We do not agree with this contention. It is extremely hard on the buyer and it would be difficult, if not impossible, for him to establish the obligation on the part of the seller. But taking the whole clause, it is clear that the mills are excused only in certain specified contingencies and they have no option or latitude to deliver or not to deliver the goods at their sweet will. They can only justify their non-delivery, that is, they can escape liability for non-performance of the contract, if they can satisfy the conditions or contingencies specified in cl. 12. On the other hand, if the appellant can make out that in fact there were no prior or later commitments of the mills, which must mean genuine or bona fide commitments, then the respondent company can be made liable for non-delivery, that is, for breach of the contract. Sir Frederick Pollock in the Principles of Contract, 12th Ed., p. 3, has formulated the law as follows:—
The agreement must be, in our old English phrase, an act in the law: that is, it must on the face of the matter be capable of having legal effects. It must be concerned with duties and rights which can be dealt with by a Court of Justice. And it must be the intention of the parties that the matter in hand shall, if necessary, be so dealt with, or at least they must not have the contrary intention ………… Again, there must not only be an act in the law, but an act which determines duties and rights of the parties.
We are satisfied that here the duties and rights of the parties can be dealt with by a Court of Justice. If the mills want to escape liability on the ground of the stoppage of mill or scarcity of raw materials or prior or later commitments or any event or circumstance beyond the control of the mills or any other eventuality mentioned in cl. 12, surely the Court can go into the matter and adjudicate upon the rights and obligations of the parties accordingly. We, therefore, agree with the learned Judge that the contract was not null and void.
Parties can enter into any agreement they like. As has been put in the latest edition of Salmond and Williams on Contract, 2nd Ed., p. 563,—
It is competent to the parties by their agreement to exclude all legal remedies whatever in respect of breaches thereof. So much the more, therefore, may they merely modify those remedies. In particular they may provide that if the contract be rescinded for breach, no damages, or only limited damages, may be claimed by the rescinding party.
This is not a case where there was a mere gentleman's agreement. Clause 12 cannot he read as “the Honourable “Pledge Clause” like the one in Rose and Frank Company v. J.R Crompton and Brothers, Limited. The arrangement between the parties constitutes a legally binding contract. It is impossible to construe the document, dated May 4, 1948, as an agreement which did not give rise to any legal relations. The fulfilment of the contract did not rest merely on the option, whim or sweet will of one party and both the parties contemplated to settle their disputes by outside intervention in the event of any dispute or difference with regard to the fulfilment of the contract.
The next point urged by Mr. Surita on behalf of the appellant is that, in any event, there is no mutuality in the arbitration clause and, therefore, it is void and not binding. He urged that an agreement to refer any dispute at the option of one of the parties is not an arbitration agreement. He relied on the case of Burjor F.R Joshi v. Ellerman City Lines, Limited. In that case a clause in the bill of lading provided that all claims arising thereunder—
shall be determined at the port of destination of the goods according to British law, or at the ship-owner's option determined in the United Kingdom and to the exclusion of the jurisdiction of any other country.
Macleod, C.J held that the definition of submission as contained in s. 4 of the Indian Arbitration Act of 1899 could not cover such an agreement as contained in the above clause. On the merits. His Lordship held that there should be no stay of the suit and it may he contended that his observations on the question of validity of the arbitration clause were obiter dicta. Yet the view of the learned Chief Justice should be treated with respect. In course of the judgment he observed as follows:—
Leaving aside the particular nature of this agreement, if there had been an ordinary agreement to refer any disputes that might arise to the arbitration of named arbitrators at the option of one of the parties, then I should certainly hesitate before holding that was a submission within the proper meaning of that term.
The next case cited by Mr. Surita was the case of Marittima Italiana Steamship Company v. Burjor Framroze Joshi. Sir Norman Kemp, A.C.J observed that where a clause in an agreement contains an arbitration clause where both the parties are not hound to refer the dispute to a particular tribunal, then there is no mutuality in the reference and such a clause would not amount to a “submission” under the Indian Arbitration Act of 1899. These observations are also in the nature of obiter dicta, because in that case it was held that cl. 27 of the bill of lading constituted a valid “submission” under the Indian Arbitration Act to the judicial authority in Genoa and the learned Judges reversed the judgment of the trial Judge and ordered the stay of the suit.
Clause 27 was in the following terms:—
All applications for indemnity of damage, shortage, deterioration, loss of goods hipped, shall be submitted for amicable settlement to the agency of the company at the port of discharge. Failing such an amicable understanding, either the hipper or the consignee, desiring to proceed against the company in Court of Law, can do so before the judicial authority in Genoa, Naples, Cagliari or Venice, in case of a dispute for more than liras 500; and only before the judicial authority in Genoa for sums over that amount, the shipper and the receiver or any other person interested in the cargo expressly renouncing the competence of any other judicial authority.
Our attention was drawn by Mr. H.C Majumdar, learned counsel for the respondent, to a judgment of Aston, A.C.J in the case of Mulchand Sobhraj v. Radhkishin Parumal. There, the learned Judge held that where the agreement to refer was subject to a condition, i.e, the exercise of the option given to one of the parties, it was a valid submission under s. 4 of the Indian Arbitration Act of 1899. The same view was taken in the case of Chetoomal Bulchand v. Shankerdas Girdharilal. In both these cases the learned Judge referred to the case of Woodall v. Pearl Assurance Company, Limited. In that case, there was an accident insurance policy which contained the following arbitration clause:—
11. If any question shall arise touching this policy or the liability of the company thereunder or the extent or nature of such liability or otherwise howsoever in connection herewith then the assured and all persons claiming through the assured may refer and shall be bound, if the company shall so require, to refer the same to arbitration by one arbitrator to be agreed on or in default of agreement by two arbitrators and their umpire under the Arbitration Act, 1889……………. And no person shall be entitled to bring or to maintain any action or proceeding on this policy except for the sum awarded under such arbitration.
During the pendency of the policy the assured was killed by an accident. The company denied liability and took up the position that the policy was void by misdescription or mis-statement of material facts or on the ground that the assured had changed his occupation. In any event, the company required arbitration under condition 11. There was an action on the policy and the Court of appeal held that the insurance company was not seeking to repudiate the contract of insurance but was affirming the contract though disputing the liability under it. On a construction of condition 11, it was held that, as the company had required arbitration, the obtaining of an award was the condition precedent to a right of action.
It is to be noticed that in Woodall's case (supra) an option was given to the insurance company to compel the claimant to refer the disputes to arbitration and yet the arbitration clause was held to be valid and binding and the insurance company was entitled to rely upon that clause as a defence to the action.
With respect to the learned Judges we do not agree with the view taken by the Bombay High Court in the two cases cited above. In the case of Sundermull Poreshram v. Tribhuban Hiraohand & Co. a submission provided for arbitration under the rules of the Bengal Chamber of Commerce or, at the option of the sellers, by two European sugar importers. The sellers exercised such option, but did not appoint their arbitrators or take any further step. The buyers referred the matter to the Bengal Chamber of Commerce and eventually the Tribunal of Arbitration of the Bengal Chamber of Commerce made an award ex parte. Buckland, J. set aside the award and held that the buyers were not entitled to have recourse to arbitration by the Tribunal of Arbitration of the Bengal Chamber of Commerce. Once the election was made by the sellers, the arbitration could only be made by the two European sugar importers and it was not open to the buyers to revert to the arbitration by the Bengal Chamber of Commerce.
In our view, there is no force in the contention that the arbitration agreement is bad because it provided for a reference at the option of one of the parties. The definition of an “arbitration agreement” in s. 2(a) of the Arbitration Act is that it means a written agreement to submit present of future differences to arbitration, whether the arbitrator is named therein or not. If there is an agreement which is in writing and which provides for submission of present or future differences to arbitration, it is a valid arbitration agreement under the Arbitration Act of 1940. The fact that the agreement is subject to some condition, for example, deposit of Rs. 500 with the arbitrators, does not prevent it from being an “arbitration agreement” within s. 2(a) of the Indian Arbitration Act. In Woodall's case (supra) Bankes L.J, Warrington L.J and Duke L.J held that the insurance company had the option of requiring a reference to arbitration under condition 11 of the insurance policy and it could rely on the arbitration clause which was valid and binding on both the parties as a defence to the action. The fact that the agreement provides an option to either the buyer or the seller to refer the matter to arbitration does not affect the validity of the arbitration agreement. Once the option is exercised or the election is made, the position in law is that both the buyers and the sellers are bound to have the matter determined by arbitration and, if after the exercise of the option the seller wants to resile from the arbitration, the buyer can compel him to resort to the arbitration tribunal. It makes no difference that the agreement to submit present or future differences to arbitration is unconditional or is subject to a contingency, e.g, the exercise of an option by one of the parties. The other party has agreed to abide by that option, and immediately the option is exercised there is a binding agreement that both the parties must abide by the award of the arbitration tribunal.
This very point is covered by a decision of a single Judge of this High Court. In Brindaban Chandra Dutta & Co. v. Bishweshwar Lal, I had the privilege to appear in that case for the plaintiff, who was resisting a stay application under s. 19 of the Indian Arbitration Act of 1899. The contract in that case provided an arbitration clause in the following terms:—
If any dispute arises with regard to this indent or to any relative goods it shall be optional to you (seller) to release me/us from the contract and take the goods back or to refer the dispute in respect of Japanese goods to the arbitration of Japanese Commercial Museum and in respect of other goods to the arbitration of the Bengal Chamber of Commerce or to two merchants, one to be nominated by each party, and I/we agree to accept the decision of the arbitration as final.
On behalf of the plaintiff I cited one of the Bombay cases, the Marittima Italiana case (supra) and put forward practically the same argument which was advanced by Mr. Surita on behalf of the appellant. That argument was not accepted by R.C Mitter, J. The relevant portion of his judgment is as follows:—
I cannot also accept the first contention of Mr. Chatterjee. The applicant had under cl. 68 the option of either releasing the opposite party from the contract or to proceed by way of arbitration if there was any dispute. When he elected not to release the opposite party from the contract he was bound to refer the matter in dispute to arbitration. The opposite party had agreed to refer disputes covered by cl. 6 to arbitration. The contract binds him. That clause fulfils the definition of “submission” as given in the Indian Arbitration Act. The test is, in my opinion, whether both parties are bound by that clause and not whether a right had also been expressly given to the opposite party to initiate arbitration proceedings.
In our view, the learned Judge Mitter, J. laid down the contract law. In this case the arbitration clause fulfils the definition of an “arbitration agreement” as contained in the Arbitration Act. Both parties are bound by that clause and it does not matter that the right to resort to arbitration has been expressly given to one of the parties who can initiate arbitration proceedings in this case. Once the option is exercised, it is final and binding on both the parties and the arbitration tribunal is the forum to which the parties must be relegated.
The appeal, therefore, fails and is dismissed with costs.
Harries, C.J:— I agree.
Appeal dismissed.
Attorney for appellant: S. Bose.
Attorney for respondent: M.G Poddar.
G.K.D