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Aghore Nauth Bannerjee v. The Calcutta Tramways Co. Ltd.
Factual and Procedural Background
The agreement allowed the Company to retain a conductor’s security deposit of Rs. 15 and wages as liquidated damages for misconduct. Article 7 made the Company’s Manager the sole decision-maker on the amount retainable and provided that the Manager’s written certificate would be conclusive evidence before any court. [1]
The dispute was referred for determination of whether Article 7 could be enforced under Indian law. The Manager had decided the dispute under the clause. [2][3]
Legal Issues Presented
- Whether Article 7 was enforceable under Indian law or contravened Section 28 of the Contract Act by restricting access to the courts. [2][4]
- Whether Article 7 fell within the first exception to Section 28 as an arbitration agreement. [5][3]
Arguments of the Parties
Plaintiff's Arguments
- Article 7 directly contravened Section 28 of the Contract Act because it ousted the jurisdiction of courts to adjudicate disputes between the conductor and the Company. [4]
- The Manager was effectively the Company itself and therefore could not properly act as an independent arbitrator. [6]
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| London Tramways Company against Bailey, L.R. 3 Q.B.D. 217 | A similar contractual clause making the Manager’s certificate conclusive was held valid. | The Court treated the decision as a direct authority supporting the validity of Article 7 and the conclusiveness of the Manager’s certificate. [7][8][9] |
Court's Reasoning and Analysis
The Court interpreted Section 28 as substantially enacting the English law concerning agreements restricting enforcement of contractual rights through ordinary legal proceedings. [10]
It then considered the section’s first exception, which preserves agreements referring disputes to arbitration where only the amount awarded is recoverable. [5]
The Court held that Article 7 fell within this exception. By agreement of both parties, the Manager was constituted the sole arbitrator on whether misconduct entitled the Company to retain all or part of the deposit and unpaid wages. The Manager’s certificate was made conclusive evidence of the amount retainable. [3]
The Court rejected the argument that the Manager was merely the Company. It considered that both parties had placed confidence in the Manager and agreed to accept him as arbitrator, analogous to an engineer or architect deciding disputes between a contractor and employer. [11][6]
The Court relied on the closely similar English decision in London Tramways Company against Bailey, where the Manager’s certificate was held conclusive against the conductor’s claim. [7][8]
Holding and Implications
Article 7 was enforceable and fell within the first exception to Section 28 of the Contract Act. The Manager’s certificate was held to be conclusive evidence against the plaintiff’s claim. [3][12]
The plaintiff’s claim was therefore defeated by the Manager’s certificate, and the Court made no order as to costs. [12][13] No broader implications were discussed, and no new precedent was set.
1. The point referred to us raises the question whether Article 7 of the agreement between the parties can be enforced by the law of this country?
2. Under article 6 the Company are at liberty, in case of any breach of the rules by the conductor, to retain the whole of the Rs. 15, which the latter deposited as security for his good behaviour, as liquidated damages for the breach; and they are also in the same way at liberty to retain any wages due to him; and then article 7 provides that the Manager of the Company for the time being shall be the sole judge between the Company and the conductor, as to whether the Company, in the event of any breach of the rules, is entitled to retain the whole or any part of the deposit of Rs. 15, and also all wages due at the time of his discharge, as liquidated damages; and the Manager's certificate in writing is to be conclusive evidence before any Court of Justice that the amount certified to be retained is correct, and that there is sufficient cause for its retention.
3. It is contended, that this article is in direct contravention of Section 28 of the Contract Act as ousting the jurisdiction of the Courts to adjudicate between the conductor and the Company under such circumstances.
4. Now Section 28, as I take it, intends to enact, as nearly as may be, what the law of England is upon the subject. It says, that
"every agreement by which any party: is restricted absolutely from enforcing his right under it, or in respect of any contract by usual legal proceedings in the ordinary tribunals or which limits the time within which he may thus enforce his rights is void to that extent."
5. But then the first exception to the section provides,
"that this is not to render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred."
6. The point which we have to determine here is, whether article 7 of the agreement now in question comes within that exception. I am of opinion that it does. The Manager of the Company is by that clause constituted by both parties the sole arbitrator between the Company and the conductor, as to whether, in the event of the conduetor's misconduct, the Company is entitled to retain the whole or any part of the deposit of Rs. 15, and of any wages which may be due to him at the time of his discharge; and the certificate of the Manager is to be conclusive evidence in all Courts of Justice of the amount which the Company are entitled to retain. That seems to me precisely such a case as comes within exception I of Section 28 of the Contract Act; and the dispute between the parties which has arisen in this instance has been decided by the Manager under the arbitration clause.
7. The point is very similar to those which so frequently occur in England, where an engineer or architect is constituted the arbitrator between a contractor and the person who employs him as to what should be allowed in case of dispute for extras or penalties.
8. It has been argued for the plaintiff', that the Manager in this case is -virtually the Company. But this is not so. The Manager here is no more the Company than the engineer or the architect in the cases to which I have just referred is the employer. Both parties have faith in the Manager, and are content to place themselves in his hands, as an arbitrator between them in the event of dispute.
9. In the English case of the London Tramways Company against Bailey L.R. 3 Q.B.D. 217, to which we were referred, a precisely similar clause in the articles of agreement was held to be valid.
10. There the complainant was one of the conductors of the Tramways Company under an agreement very similar in its terms to that which we are now considering; and the Court held, that the certificate of the Manager was conclusive against the claim of the conductor.
11. If I am right in supposing that Section 28 of the Contract Act does virtually enact the law of England, that case is a direct authority in favour of the view which we take.
12. We therefore hold that the certificate of the Manager is conclusive evidence against the plaintiff's claim.
13. We make no order as to costs.
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