Kantawala, C.J:— The Fertilizer Corporation of India, the plaintiffs, have filed this appeal against the judgment and order of K.K Desai, J. whereby he stayed the suit filed by the plaintiffs against the defendants having regard to the provisions of s. 34 of the Arbitration Act, 1940. On March 22, 1961 the plaintiffs entered into a contract with the defendants to do various things in connection with setting up of the Ammonia Plant. That agreement is divided into several Articles. Article III provided for the various obligations of the defendants. Under this Article the defendants were to perform diverse services for the Plant as therein enumerated. Article IV deals with procurement of certain items of equipment in India. Paragraph 5.1 of this: Article inter alia provided that for the performance of defendants' services and the supply of materials and equipments as outlined in Article III paragraph 3.1 the plaintiffs shall pay to the defendants a firm price of $ 19,790,000 subject to deduction under Article IV payable in United States funds collectable at par in New York, U.S.A Article VI of the agreement provided terms in relation to taxes. Paragraph 6.1 thereof is as under:
“6.1 It is understood that all the above mentioned price and/or fees and any subsequent prices and/or fees agreed upon are and shall be free of any taxes and/or dues of any kind that may be levied by any Indian Authority in respect of Chemico's (defendants') activity and/or profits arising or accruing in or out of India as a result of the supply of services and equipment under this Agreement including any such levies or taxes on income of all foreign supervisory personnel assigned to the Project in India. It is agreed that should any of the aforementioned taxes and/or levies be assessed upon Chemico (defendants) or its employees by an Indian authority under any existing or future Indian Laws or regulations, the total cost of all such levies will be paid by the client (plaintiffs) to Chemico (defendants) in local currency.”
2. There is an arbitration clause in this agreement and it is contained in paragraph 12.2 of Article XII. That paragraph relating to arbitration is as under:
“12.2 Except as otherwise provided all disputes and differences between the Client (plaintiffs) and Chemico (defendants) shall be finally settled by arbitration in conformity with the rules of conciliation and arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the rules. The venue of all arbitrations shall be New Delhi in India.”
3. On March 14, 1963 almost an identical agreement was entered into between the plaintiffs and the defendants in relation to erection of a sulphuric acid plant. It is unnecessary to refer to the terms and conditions thereof, as the relevant conditions for the purposes of the present appeal are almost identical. The matters in controversy in this suit relate to the liability of the plaintiffs to pay taxes as provided under these two agreements. The scheme of paragraph 6.1 of Article VI of the, two agreements was such that the price and/or fees agreed upon to be paid by the plaintiffs to the defendants were free from taxes that may be levied by any Indian authority in respect of the defendants' activity and/or profits arising or accruing in or out of India as a result of the supply of services and equipment under the said agreements. The case of the plaintiffs is that for the purpose of income-tax in India the defendants filed returns of income without consulting and/or informing or referring the same to the plaintiffs in breach of what was contemplated by virtue of paragraph 6.1 of both the agreements. For the first three assessment years, namely, 1962–1963, 1963–1964 and 1964–1965 the defendants filed returns of income showing some losses. For the assessment year 1965–1966 the defendants filed a return showing a profit of Rs. 6,01,784 from which they claimed the losses of the three previous years. The case of the plaintiffs is that the said returns were submitted by the defendants to the tax authorities on the basis of the prices or amounts agreed to be paid by the plaintiffs to the defendants for services of the personnel of the defendant company in India. In the said returns the defendants did not include any profits which might have arisen to them out of the total price of $ 19,790,000 under paragraph 5.1 of the agreement of 1961 and out of the total price of $ 760,150 under paragraph 5.1 of the second agreement. The case of the plaintiffs is that in the said returns for four years losses or profits were computed on the basis of income arising under paragraphs 5.2 and 5.3 of each of the said agreements. Their further case is that income of Rs. 78,119 computed for the assessment year 1965–1966 was grossed upto Rs. 2,50,748 by the Income Tax Officer since the income of Rs. 78,119 was free of income-tax; in the hands of the defendants. Upon the request of the defendants the plaintiffs paid a sum of Rs. 50,777.35 as advance tax for the assessment year 1966–1967 in three equal instalments. The real disputes between the parties centred on the liability of the plaintiffs to pay tax for the assessment years 1966–1967 and 1967–1968. For the assessment year 1966–1967 the defendants filed a return of income showing an income of Rs. 18,39,934. The case of the plaintiffs is that this return was filed by the defendants without consulting or disclosing or informing or furnishing details to the plaintiffs as to the manner in which and/or on what basis the said income of Rs. 18,39,934 was computed or how it was arrived at. Their case is that in computing or arriving at the said figure of income the defendants purported to include) a part of the lump sum payment for the Plant and equipment and the services to be rendered in U.S.A under paragraph 5.1 of each of the said agreements as income arising or accruing to the defendants in India. In view of the said net income (free of taxes) of Rs. 18,39,934 for the assessment year 1966–1967 the grossed up income would be Rs. 61,33,113. On the said gross income the total income tax payable came to Rs. 42,93,179. Deducting therefrom Rs. 50,777 which was paid as advance tax, a balance of Rs. 42,42,402 was payable. The case of the plaintiffs is that with a view to avoid levy of penalty and the charging of penal interest under the Income Tax Act, 1961 and relying upon the statements and representations made by the defendants to the plaintiffs and/or in the said return of income for the assessment year 1966–1967 and/or believing or acting upon the faith and truth of the said statements and representations and not otherwise, the plaintiffs, deposited the sum of Rs. 42,42,402 into the Reserve Bank of India, Bombay. By the letter dated December 3, 1966 addressed to the Income Tax Officer, Companies Circle, Bombay, the plaintiffs recorded that the said amount was paid under protest as the defendants had not furnished to the plaintiffs as to how they had arrived at the income of Rs. 18,39,934. It was further stated in the said letter that the said payment should be treated as provisional payment subject to final adjustment on regular assessment. The case of the plaintiffs is that the said return of income filed by the defendants for the assessment year 1966–1967 was clearly wrong and filed with a mala fide intention of making the plaintiffs pay a large amount of tax under paragraph 6 of the said agreements and thereby taking advantage of the said large payment made by the plaintiffs in India on behalf of the defendants to enable the defendants to claim relief or benefit under the taxation laws of U.S.A in the nature of double income-tax relief. In calculating the said amount of income, it is the case of the plaintiffs that the defendants deliberately offered for taxation part of the lump sum payments of $ 19,790,000 and $ 760,150 for plant and equipment and services to be rendered by the defendants exclusively in U.S.A in paragraph 5.1 of each of the said two agreements. It is their case that upon a true construction of the said agreements no part of the said lump sum payments of $ 19,790,000 and $ 760,150 for plant and equipment and services to be rendered in U.S.A is taxable in India.
4. For the assessment year 1967–1968 the plaintiffs were required to pay a sum of Rs. 42,55,096 as advance payment of tax. The plaintiffs paid the said sum under protest to the Income Tax Department as called upon by the defendants. According to the plaintiffs the said amount was paid to avoid penal proceedings and charges of penal interest under the Income-tax Act, 1961 and relying upon the statements and representations made by the defendants to the plaintiffs and/or in the said return of income for the assessment year 1967–1968 and/or believing or acting upon the faith and truth of the said statements and representations and not otherwise. In October 1967 the plaintiffs filed revised returns of income for the assessment years 1966–1967 and 1967–1968 for and on behalf of the defendants and as their agents. According to the plaintiffs they became liable to pay by way of tax a maximum amount of Rs. 19,45,025 only on the footing that the defendants were to receive taxable remuneration free of tax. Their case is that they were thus made to pay an excess amount of Rs. 66,00,000 for the assessment years 1966–1967 and 1967–1968. There are two claims made in the plaint in the alternative, the defendants are liable to pay to the plaintiffs the total sum of Rs. 85,86,358.36 which was paid by them for the assessment years 1966–1967 and 1967–1968 or in the alternative a sum of Rs. 66,41,333.36 and interest. There were four substantive reliefs claimed in the suit. By prayer (a) the plaintiffs asked for a declaration that the returns of income filed by or on behalf of the defendants for the assessment years 1966–1967 and 1967–1968 were not valid and legal and were not binding on the plaintiffs. By prayer (b) a relief by way of injunction was sought., Thereby the plaintiffs prayed that the defendants may be ordered and decreed to withdraw the said returns of income filed by them or on their behalf by their accountants, and/or to file revised returns of income for the said two assessment years excluding therefrom any income arising under paragraph 3.1 of each of the said agreements of 1961 and 1963 and/or in the alternative the defendants be directed to accept as returns filed by or on behalf of the defendants as their returns, the returns of income filed by the plaintiffs for the said two assessment years and to permit and allow the plaintiffs and/or their representatives to appear with the defendants before the Income Tax Officer and/or the Appellate Authorities in the course of the assessment proceedings for the said two years. By prayer (c) the plaintiffs asked for a decree in their favour in the sum of Rs. 80,21,460.66 against the defendants and by prayer (d) an alternative claim was made for a decree in the sum of Rs. 66,41,333.36 as and by way of general damages and the sum of Rs. 13,80,127.30 as and by way of special damages. The suit was filed on or about November 11, 1968.
5. On January 7, 1969 the defendants took out a Notice of Motion for stay of further proceedings in view of the provisions of s. 34 of the Arbitration Act, 1940. This Notice of Motion was taken out upon the plea that all the reliefs in the suit filed by the plaintiffs were founded upon the terms and conditions of the two contracts referred to therein; that both these contracts contained provisions for reference to arbitration; that all the matters in controversy between the parties in the suit were covered by the scope and ambit of the arbitration clause contained in the said two agreements; that at all relevant times they were ready and willing to submit the disputes and differences between the parties to arbitration; and that under the circumstances they were entitled to a relief from the Court for stay of further proceedings in the suit in view of the provisions of s. 34 of the Arbitration Act, 1940.
6. This Notice of Motion was resisted on behalf of the plaintiffs, but the learned Judge by his order dated February 20, 1969 accepted the contention of the defendants and directed that all further proceedings in the suit are stayed under s. 34 of the Arbitration Act.
7. It is against this order passed by the learned Judge that the plaintiffs have come in appeal before us.
8. Mr. Bhabha on behalf of the plaintiffs contended that the learned Judge was not justified in passing an order for stay of further proceedings in the suit, firstly because the matters in controversy between the parties in the suit were not covered by the scope and ambit of the arbitration clause contained in the two agreements. Secondly, he contended that by the arbitration clause contained in the two agreements, the disputes and differences between the parties were to be settled by arbitration in conformity with the rules of conciliation in arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the rules; that some of the said rules were inconsistent with and in conflict with the provisions of the Arbitration Act, 1940 and were void; that accordingly it was not permissible to the Court to construe an arbitration in a form other than that as agreed between the parties and that when such is the position it is not permissible to the Court to stay further proceedings in the suit. Thirdly, the contention was that even if prayers (a) and (b) which related to reliefs of declaration and injunction are covered by the arbitration agreement such reliefs can only be granted by the Court and the arbitrators will have no jurisdiction to grant the same; that when such is the position, in exercise of the discretion vested under s. 34 of the Arbitration Act, 1940 the Court ought not to pass an order of stay of further proceedings in the suit. Fourthly, he contended that having regard to the facts and circumstances of the present case it is quite evident that the defendants were not ready and willing to go to arbitration at all material times and that when such is the position, it is not permissible to the Court to pass an order of stay. Lastly, his contention was that there are allegations of fraud made against the defendants and when such allegations of fraud are made, it will be more appropriate for the Court to decide such questions and in exercise of discretionary power of the Court an order for stay of further proceedings in the suit ought not to be passed.
9. The first question that arises for determination in this appeal is whether the matters in controversy between the parties in the suit are covered by the scope and ambit of the arbitration clause contained in the two agreements. Paragraph 12.2 of the two agreements provide that except as otherwise provided all disputes and differences between the parties shall be finally settled by arbitration in conformity with the rules of conciliation and arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the rules. The arbitration clause in the present case is as regards the subject-matter of claims within its ambit in the widest possible terms. This clause is not in terms limited to claims arising under the contracts. It speaks simply about all disputes and differences between the parties. This of course does not mean that the term applies to claims of every imaginable kind. Claims which are entirely unrelated to the two agreements entered into between the parties would no doubt be excluded. When the arbitration clause is worded in such a comprehensive manner, all disputes and differences arising out of or concerning or in connection with or in consequence of or relating to the two agreements are referable to arbitration.
10. Though allegations of fraud and negligence are made at more than one place in the plaint, the cause of action is not precisely worded. It is however well settled that regard is to be had to the substance of the claim made in the suit and not merely to the form in which it is put. There can be no doubt whatsoever in this case that the claim in the present case is made by the plaintiffs primarily relying upon paragraphs 3.1, 5.1 and 6.1 of the terms of the two agreements. The liability to pay tax is imposed upon the plaintiffs by paragraph 6.1 of the two agreements and the case of the plaintiffs distinctly is that the returns filed by the defendants for the assessment years 1966–1967 and 1967–1968 are in breach of what was contemplated by virtue of paragraph 6.1 of both the agreements. Their case further is that the profits which might accrue or arise to the defendants out of the total price under paragraph 5.1 of the two agreements were not to be regarded as amount taxable in India. Their further plea is that having regard to the terms and obligations of the parties under the agreements the defendants ware under an obligation to file returns of income after consulting and/or informing and/or referring the same to the plaintiffs; that both for the assessment years 1966–1967 and 1967–1968 they have paid the two amounts mentioned in the plaint relying upon the statements and representations made by the defendants to the plaintiffs and/or in the returns of income for the said two years and/or believing or acting upon the faith and truth of the said statements and representations and not otherwise and/or believing that the said returns of income were prepared according to on, based on the correct and true facts and the provisions of the Income Tax Act, 1961. Undoubtedly, they have stated in the plaint that the amounts for the two years have been paid by them under protest, but there is no averment in the plaint indicating what type of coercive proceedings could have been adopted by the defendants in order to compel the plaintiffs to pay the said amounts except by adopting legal proceedings either before the arbitrator or in a Civil Court. The cause of action after referring to the various facts is generally set out in paragraphs 19 to 24 of the plaint which clearly show that the averments and submission made therein are based upon their contentions as regards the rights and obligations of the parties upon true construction of the various provisions of the two agreements. It is undoubtedly their case that while submitting the returns for these two years the defendants showed therein various amounts by way of income which having regard-to the true interpretation of the terms of the agreements ought not to have been included therein; that such amounts were so included with the mala fide object of claiming double taxation relief in U.S.A; that in so submitting the returns the defendants are either guilty of fraudulent or negligent behavior but there is no specific averment in the plaint that the claim in the suit is based by way of an action in tort. Upon a proper scrutiny of the averments in the plaint, the case of the plaintiffs is that having regard to the terms and obligations of the parties under the two agreements for the assessment years 1966–1967 and 1967–1968 they were made to pay to the Income Tax Department amounts which having regard to the rights and obligations of the parties under the contracts they were not liable to pay. Thus the whole of the claim in the suit is really founded upon the interpretation of the various provisions of the two agreements. As the arbitration clause in the present case is very wide, all the matters in controversy between the parties in the suit are covered by the arbitration clause contained in paragraph 12.2 of the agreements.
11. What is a tortious liability is discussed in Win field and Jolowicz on Tort, Ninth Ed. at pages 11 to 14. At page 11 it is stated that
“tortious liability arises from the breach of a duty primarily fixed by the law; this duty is towards persons generally and its breach is redressible by an action for unliquidated damages”.
12. It is Winfield's view that tortious duties exist by virtue of the law itself and are not dependent upon the agreement or consent of the persons subjected to them. Further in Winfield's view, if the primary duty is towards a specific person or specific persons, it cannot arise from tort. Lastly the breach of duty is redressible by an action for unliquidated damages. Where the plaintiff in an action sues for a predetermined and inelastic sum of money, he is claiming liquidated damages. But where he seeks to recover such an amount as the Court, in its discretion, is at liberty to award, he is claiming unliquidated damages, and this is so even where he has specified a particular sum of money in his pleadings. If regard be had to the cause of action pleaded in the plaint, it is quite apparent that the case of the plaintiffs is that while submitting the returns of income for the assessment years 1966–1967 and 1967–1968, the defendants have included therein various amounts which upon a true construction of the terms of the two contracts they were not entitled to do; that by reason of such wrongful inclusion of amounts the plaintiffs were made to pay the amounts claimed in the suit which otherwise upon proper construction of the terms of the contracts they were not liable to pay. Substantially the claim is not by way of tort but is for enforcement of a liability arising from a breach of the contracts on the part of the defendants.
13. Even if the claim in suit be regarded as both arising under contract and by way of tort, that by itself is not sufficient to exclude the matters in controversy between the parties from the ambit of an arbitration clause when it is worded in such words of wide amplitude. In Woolf v. Collis Removal Service . [1947] 2 All E.R 260., in his statement of claim the plaintiff alleged that the defendants had contracted to remove his furniture and effects from London to their store in M., and there safely to keep and take care of them, and that, in breach of that contract, they had removed the goods to a different destination, a farm in B., where some of them were lost and others damaged. Further, or alternatively, the plaintiff alleged that the goods were lost and damaged owing to the negligence of the defendants in using, when the goods arrived at B., an unsuitable place in which to store them and guarding them inefficiently. There was an arbitration clause in the following terms:
“If the customer makes any claims upon or counter-claim to any claim made by the contractors, the same shall in case of difference be referred to the decision of two arbitrators … and, the making of an award shall be a condition precedent to any right of action or counterclaim.”
14. Upon a suit being filed, before taking any steps in the action the defendants applied under s. 4 of the (English) Arbitration Act, 1889 (corresponding to s. 34 of the Arbitration Act, 1940) for a stay, which was granted by the master, and his decision was upheld by the Judge in chambers. In appeal the Court of Appeal inter alia held that even if the claim in negligence was a claim in tort and not under the contract, yet there was a sufficiently close connection between that claim and the transaction to bring the claim within the arbitration clause. Asquith L.J at page 263 points out:
“The arbitration clause in the present case is, as to the subject-matter of claims within its ambit, in the widest possible terms. That clause is not in terms limited to claims arising ‘under’ the contract. It speaks simply of ‘claims’. This, of course, does not mean that the term applies to claims of every imaginable kind. Claims which are entirely unrelated to the transaction covered by the contract would no doubt be excluded; but we are of opinion that, even if the claim in negligence is not a claim ‘under the contract,’ yet there is a sufficiently close connection between that claim and that transaction to bring the’ claim within the arbitration clause even though framed technically in tort.”
15. For determining the nature of the disputes which can be regarded as falling within the scope and ambit of an arbitration clause, reference was made to a decision of the Supreme Court in Union of India v. S.T & C. Co. . [1969] A.I.R S.C 488. In this case the Supreme Court laid down the test to be applied when the parties provided for reference to arbitration in respect of disputes arising out of or in connection with a contract. While construing such a clause, the test was laid down by the Supreme Court as under (p. 491):
“…The test for determining the question is whether recourse to the contract by which both the parties are bound is necessary for the purpose of determining whether the claim of the respondent firm is justified or otherwise. If it is necessary to take recourse to the terms of the contract for the purpose of deciding the matter in dispute, it must be held that the matter is within the scope of the arbitration clause and the arbitrators have jurisdiction to decide this case.”
16. In the present case the arbitration clause contained in paragraph 12.2 of the two agreements is of the widest amplitude and it is impossible to decide the matters in controversy between the parties in the suit without recourse being had to the terms and conditions of the contracts. In fact the cause of action in the plaint is founded having regard to the rights and obligations of both the parties under the several terms of these two agreements.
17. Reliance was placed by Mr. Bhabha upon a decision of the Calcutta High Court in Ghewarchand v. Shiva Jute Bailing Ltd. . [1950] A.I.R Cal. 568. In this case the principle that was laid down by Asquith L.J in Woolf's case was accepted, but the Court took the view that upon the facts of the case that principle was not attracted. According to the Division Bench
“An action is not to be considered to be in relation to and in connection with a contract merely because it is shown that if there had never been any contract there would not have been any cause of action. What the Court is to look into is what the substance of the plaint is but not how the claim is framed. If the cause of action on which the claim is based is an independent one which does not arise on the contract or is not in relation to the contract, it is idle to suggest that merely because at some earlier stage there was a contract and, while giving the history of the case, some reference has to be made to a previous contract, it cannot be said in every such case that it is in some way or other related to the contract.
Whether in a case the dispute arises out of the contract or is in relation to the contract or not must depend on the particular facts of each case.”
18. Applying the principle the Court took the view that the cause of action in the case before them was based wholly upon tort and tort alone which had got no connection direct or indirect with the contract itself, and that the reference to the contract was only a link in the story to show how the goods came to be in the possession of the defendants and the claim is not based in any way or related to the contract itself. There can be no controversy as regards the principle laid down in this case, but if the facts of the case before us are scrutinised there is no doubt that the claim is made by the plaintiffs in the suit relying upon the true construction of the various terms of the two agreements and the rights and obligations of the parties arising thereunder. Primarily reference has been made to such rights and obligations under the provisions of paragraphs 3.1, 5.1, and 6.1 of the agreements and it is stated that upon a proper construction of the said terms the defendants were not entitled to include certain amounts in the returns of income filed by them for the two relevant years and the plaintiffs cannot be called upon to pay the amount of tax notwithstanding their obligation under paragraph 6.1 thereof.
19. In our view, all the matters in controversy in this suit are directly covered by and are within the scope and ambit of the arbitration clause contained in paragraph 12.2 of the two agreements.
20. Before the trial Court it was contended on behalf of the plaintiffs that the provisions of s. 34 of the Arbitration Act, 1940 do not apply to the arbitration clause contained in the two agreements; that to these proceedings the provisions in the Foreign Awards (Recognition and Enforcement) Act, 1961 apply; that under s. 3 of the Act, the defendants were not entitled to stay of the suit, inasmuch as a submission in writing in pursuance of the arbitration clause contained in the two agreements has not been executed by and between the parties; that under that section, the existence of such a submission is a condition precedent for stay of the suit. That contention was negatived by the learned Judge and the learned Judge took the view that the proceedings before the arbitrators will be governed by the provisions of the Arbitration Act, 1940.
21. In D. Gobindram v. Shamji K. & Co. . [1961] A.I.R S.C 1285, S.C 64 Bom. L.R 169. it is laid down as follows:
“Whether the proper law is the lex loci contractus or lex loci solutionis, in the absence of any expressed intention is a matter of presumption. If Courts of a particular country are chosen, it is expected, unless there be either expressed intention or evidence, that they would apply their own law to the case. Where the arbitration clause indicated an arbitration in India, this leads to an inference that the parties have adopted the law of the country in which arbitration is to be made. This inference can be drawn even in a case where the arbitration clause is void according to the law of the country, where the contract is made and to be performed.”
22. The finding of the learned Judge that the proceedings before the arbitrators would be governed having regard to the provisions of the Arbitration Act, 1940, is not challenged before us. The argument, however, was that under paragraph 12.2 of the two agreements, the disputes and differences were to be settled by arbitration in conformity with the rules of conciliation and arbitration of the International Chamber of Commerce; that some of the rules framed by the International Chamber of Commerce for arbitration are inconsistent with the provisions of the Arbitration Act, 1940 and that accordingly the arbitration agreement itself is void as it is inconsistent with the provisions of the law applicable in the country. Though such a plea was not taken either in the affidavit in reply or in the trial Court, we have permitted Mr. Bhabha to argue the same as it is based upon a finding given by the learned Judge.
23. The argument of Mr. Bhabha is that the provisions contained in Articles 7, 13, 23, 26, 29 and 30 of the Rules of conciliation and arbitration framed by the International Chamber of Commerce are inconsistent with some of the provisions of the Arbitration Act, 1940 and are therefore void. His submission is that if such Rules are void, then it is not permissible to the Court to compel the parties to go to arbitration that is to be conducted not in accordance with the rules provided in the arbitration clause, but something other than those agreed to by them. Article 7 of the Rules provided for choice of arbitrators. This Article contains five Rules and the argument of Mr. Bhabha was that Rules 2, 3 and 4 are inconsistent with the provisions of the Arbitration Act, 1940. The arbitration clause in the present case deals with arbitration by one or more arbitrators appointed in accordance with the arbitration Rules. Rule 2 of Article 7 deals with the procedure to be followed when the parties are unable to arrive at an agreed choice as to the arbitrator or arbitrators. The first paragraph of rule 2 provides that if the parties have agreed to the settlement of a dispute by a sole arbitrator, they may nominate him by common agreement for confirmation by the Court (meaning, Court of Arbitration or arbitrator or arbitrators). Failing agreement between the parties within a period of thirty days from the notification of the request for arbitration to the opposite party, the arbitrator shall be appointed by the Court. Sub-paragraph 2 of this rule deals with a case where the reference is to be to three arbitrators. It is unnecessary to refer to the provisions of this sub-paragraph as in the present case there is no provision for reference to three arbitrators. The sub-paragraph 3 of rule 2 provides that if the parties fail to agree on the number of arbitrators, the Court shall appoint a sole arbitrator, unless one of the parties requests that the case be submitted to three arbitrators and the dispute appears to the Court important enough to warrant the appointment of three arbitrators. In this case, the rules of the preceding paragraph shall apply and the parties shall be allowed a period of fifteen days in which to nominate their arbitrators. The argument of Mr. Bhabha is that the provisions of this rule interfere with the power of the Court contained in s. 8 of the Arbitration Act, 1940. Section 8 provides for the power of the Court to appoint arbitrator or umpire under the circumstances therein specified, but it is difficult to see how the provisions of rule 2 can be regarded as being inconsistent with or contrary to the provisions of s. 8 of the Arbitration Act, 1940.
24. In D. Gobindram v. Shamji K. & Co. it is held:
“Where the parties by their agreement have placed the power of selecting an arbitrator or arbitrators (in it is included also the umpire) in the hands of the Chairman of the Board of Directors of East India Cotton Association Ltd. the Court can certainly perform the ministerial act of sending the agreement to him to be dealt with by him. Once the agreement filed in Court is sent to the Chairman, the Bye-laws lay down the Procedure for the Chairman and the appointed arbitrator or arbitrators to follow, and that procedure, if inconsistent with the Arbitration Act, prevails. In such a case there is no impediment to action being taken under s. 20(4) of the Arbitration Act, 1940.”
25. This decision, therefore, clearly lays down that the provisions contained in rule 2 of Article 7 are in no way inconsistent with the provisions of the arbitration act and does not fetter or restrict the powers of the Court to act thereunder.
26. Rule 3 of Article 7 provides that
“when the Court has to appoint one or more arbitrators, it shall choose the National Committee or Committees from which it shall request nominations. Sole arbitrators and third arbitrators must be nationals of countries other than those of the parties”.
27. The argument of Mr. Bhabha was that this provision imposes fetter upon the power of the Court to appoint an arbitrator who is a National of the country to which the parties belong. We fail to see how such a provision can be regarded as being inconsistent with any of the provisions of the Arbitration Act, 1940. The object underlying this provision is to ensure that the disputes between the parties are decided by an arbitrator who is not a National of the country to which either of the parties belonged. This is with a view to avoid the possible charge of bias or partiality on the part of the arbitrator and its provisions can never be objected to.
28. Rule 4 of Article 7 provides that
“should an arbitrator be challenged by one of the parties the decision of the Court of Arbitration, which shall be the sole judge of the grounds of challenge shall be final”.
29. The argument of Mr. Bhabha was that the provisions of this rule are inconsistent with the provisions of ss. 5 and 11 of the Arbitration Act, 1940. Section 5 provides that the authority of an appointed arbitrator or umpire shall not be revocable except with the leave of the Court, unless a contrary intention is expressed in the arbitration agreement. Assuming that the provisions of rule 4 are in any way inconsistent with or not in consonance with the provisions of s. 5, there is a clear indication in s. 5 that whenever such inconsistency exists then the contrary intention expressed in the arbitration agreement is to prevail. Section 11 deals with the power of the Court to remove arbitrators or umpire under the circumstances therein specified. We fail to see how the provisions of rule 4 can be regarded as a fetter upon the power of the Court to remove an arbitrator under the provisions of s. 11 of the Arbitration Act, 1940.
30. Article 10 of the Rules deals with the effect of arbitral agreement. Reference was made to rules 3 and 4 under this Article. Rule 3 provides that
“if one of the parties raises one or more pleas as to the existence or validity of the arbitration clause, and the Court of Arbitration has satisfied itself of the prima facie existence of such a clause, the Court may, without prejudice to the admissibility or the merits of such pleas, order that the arbitration shall proceed. In. this case, any decision as to the arbitrator's jurisdiction shall lie with the arbitrator himself”.
31. Rule 4 of this Article provides that
“Unless otherwise stipulated, the arbitrator shall not cease to have jurisdiction by reason of an allegation that the contract is null and void or non-existent. If he upholds the validity of the arbitration clause, he shall continue to have jurisdiction to determine the respective rights of the parties and to make declarations relative to their claims and pleas even though the contract should be null and void or non-existent”.
32. The argument of Mr. Bhabha is that it is settled law that arbitrator has no jurisdiction to decide the existence or the plea as to validity of the contract containing an arbitration clause under which he acts; that when such a power is conferred upon an arbitrator by rules 3 and 4 of Article 13 it is totally inconsistent with the position which is settled in law in this country. It is undoubtedly true that under rules 3 and 4 of Article 13 questions relating to the existence and validity of the contract are permitted to be decided by the arbitrator. The question, however, arises whether conferring of such power upon the arbitrators invalidates an abitration agreement. Reference can be had to a passage in Russell on Arbitration, Eighteenth Ed. at page 142. It is stated there:
“It would seem that an arbitration clause could be so phrased as to amount to a valid agreement to refer any dispute as to whether the contract in which the clause is contained ever became binding on the parties, as a whole, at all. Such clauses are no doubt comparatively rare.”
33. This passage in Russell on Arbitration is founded upon the observations of Lord Wright in Heymm v. Darwins, Ltd. . [1942] A.C 356. At page 385 Lord Wright observed as follows:
“….I should prefer to put it that the existence of his (arbitrator's) jurisdiction in this, as in other cases, is to be determined by the words of the submission. I see no objection to a submission of the question whether there ever was a contract at all, or whether if there was, it had been avoided or ended. Parties may submit to arbitration any or almost any question”.
34. This passage undoubtedly suggests that the clause as to arbitration may be so worded as to be comprehensive enough to include within its scope a decision as to the existence as well as validity of the contract containing such arbitration clause.
35. Counsel of both the parties have relied upon two decisions of the Supreme Court in cases which were heard together and disposed of on the same day. Mr. Bhabha relied upon the decision of the Supreme Court in Kharddh Co. Ltd. v. Baymon & Co. . [1962] A.I.R S.C 1810., that the arbitrator will have-no jurisdiction to decide a question as to the existence or validity of the arbitration agreement. Mr. Desai, on the other hand, relied upon the decision of the Supreme Court in Waverly Jute Mills v. Baymon & Co. . [1963] A.I.R S.C 90. in support of the plea that the dispute as to the validity of a contract would be a subject-matter of an agreement to arbitration in the same manner as a dispute relating to a claim made under the contract. In neither of these two cases the question which we are called upon to consider either arose for consideration or was decided. The argument of Mr. Bhabha is that as by the rules 3 and 4 of Article 13 of the Rules the arbitrators are clothed with a power to decide questions as to the existence or validity of an arbitration agreement contained in a contract, such an arbitration agreement itself is void as being inconsistent with the settled law of the country. In Khardah Co. Ltd.'s case the real question which arose for decision was whether the jurisdiction of the Court to decide a question as to the validity of the contract containing an arbitration agreement was taken away if the arbitration clause contained therein was wide enough to include within its scope a dispute inter alia relating to the validity of the contract. It is decided:
“It cannot be disputed that the expression ‘arising out of’ or ‘concerning’ or ‘in connection with’ or ‘in consequence of’ or ‘relating to this contract’ occurring in an arbitration clause in an agreement to purchase goods are of sufficient amplitude to take in a dispute as to the validity of the agreement. But the arbitration clause cannot be enforced when the agreement of which it forms an integral part is held to be illegal. On principle it must be held that when an agreement is invalid every part of it including the clause as to arbitration contained therein must also be invalid.
Accordingly, a dispute that the contract of which the arbitration clause forms an integral part is illegal and void is not one which the arbitrators are competent to decide under the arbitration clause although it is of sufficient amplitude to take in a dispute as to the validity of the agreement and in consequence a party to the contract is entitled to maintain an application under s. 33 for a declaration that the contract is illegal and that in consequence the proceedings taken thereunder before the arbitrators and the award in which they resulted were all void.”
36. At page 1815 the ratio of the decision is given thus:
“…We are accordingly of the opinion that the dispute that the contract dated September 7, 1955 is illegal and void is not one which the arbitrators are competent to decide under Cl. 14 and that in consequence the respondents are entitled to maintain the present application under s. 33 of the Arbitration Act.”
37. In Waverly Jute Mills' case, a question arose in relation to an award made under the rules and regulations framed under the Forward Contracts (Regulation) Act, 1952. At page 97 it is observed:
“… A dispute as to the validity of a contract could be the subject-matter of an agreement of arbitration in the same manner as a dispute relating to a claim made under the contract. But such an agreement would be effective and operative only when it is separate from and independent of the contract which is impugned as illegal. Where, however, it is a term of the very contract whose validity is in question, it has, as held by us in Khardah Co. Ltd. case, no existence apart from the impugned contract and must perish with it.”
38. It may be noted that both these decisions were in appeals which were heard together and disposed of by the same Bench of the Supreme Court and the judgment in both the matters was given by Yenkatarama Aiyar J. In Waverly Jute Mills' case, the decision in Khardah Co. Ltd. case is expressly referred to at more than one place and even there it is held that a dispute as to the validity of a contract could be the subject-matter of an agreement of arbitration in the same manner as a dispute relating to a claim made under the contract. It was, however, emphasised that such an agreement would be effective and operative only when it is separate from and independent of the contract which is impugned as illegal. Thus it is not impossible to have an arbitration agreement which may include within its scope a decision of arbitrator upon a question relating to the validity of the contract. However, in neither of the two cases there are any observations which go to support the contentions raised by Mr. Bhabha before us. In none of them is there any observation supporting a contention that an arbitration agreement which empowers an arbitrator to decide a question relating to existence or validity of arbitration agreement is itself void. In fact, such a question did not arise for consideration in either of the two cases, nor are there any observations which throw light thereupon. On the other hand, in Heyman's case the observations of Lord Wright are wide enough to suggest that there can be a valid agreement to refer any dispute as to whether the contract in which the clause is contained ever became binding on the parties as a whole or at all. In our opinion, the fact that under rules 3 and 4 of Article 13 arbitrators are clothed with a power to decide inter alia a question as to the existence and validity of the contract does not by itself render those rules void or nugatory. It should not be overlooked that we are in the present case not concerned with a question relating to a decision of the arbitrator on a controversy relating to existence or validity of the contract containing the arbitration agreement. In fact, this plea is raised by way of a defence in the Notice of Motion for stay of suit under s. 34 of the Arbitration Act. It is the Court which has to consider the validity of the arbitration agreement itself and if in the opinion of the Court the contract which contains the arbitration clause is valid, no question is likely to arise before the arbitrator on that point and even if such question will arise the arbitration will be concluded by a decision of this Court.
39. Under paragraph 12.2 of the agreement arbitration is to be conducted in conformity with the rules of conciliation and arbitration of the International Chamber of Commerce. These rules are of a comprehensive nature relating to arbitrations between parties ordinarily belonging to different nationality and even if for the sake of argument, any of these rules is void as being inconsistent with the law of a particular country, then qua the disputes which are governed by the law of that country such a rule has to be ignored and its provisions are clearly severable from the rest of the rules. Even invalidity of any rule in view of the law of a particular country by which the arbitration is to be governed, does not affect the validity of the arbitration agreement and the arbitration proceedings have to be conducted in accordance with the rules framed by the International Chamber of Commerce in so far as they are not inconsistent with the law of the country by which the arbitration proceedings are governed.
40. Article 23 of the Rules deals with time limit of awards. It consists of two rules. The first rule provides that the arbitrator must make the award within sixty days from the date on which he signed the statement referred to in Article 19. Rule 2 of this Article provides that the Court may extend this period if it considers it necessary. The argument of Mr. Bhabha was that the provisions of these rules are inconsistent with clause 3 of the First Schedule and the provisions of s. 28 of the Arbitration Act. Normally under clause 3 of the First Schedule an award has to be made within four months after entering on the reference. However, such a stipulation is applicable only in the absence of a contract to the contrary. Whenever there is a contract to the contrary, the time limit prescribed by clause 3 of the First Schedule is not attracted. Section 28 confers power upon the Court to enlarge time for making award. Simply because by rule 2 the Court of Arbitration has been conferred power to enlarge time, the power of the Court to enlarge time under s. 28 is not affected or interfered with. All the powers which are conferred upon the Court under s. 28 of the Arbitration Act, 1940 will be available notwithstanding the provisions of Article 23. We see nothing in rules 1 and 2 of Article 23 which can be regarded as inconsistent with or not in consonance with the provisions of s. 28 of the Arbitration Act, 1940.
41. Article 26 of the Rules requires that the award made by the arbitrators has to be passed by the Court of Arbitration. Under that Article before completing the award, the arbitrator shall submit the same to the Court of Arbitration. The Court may lay down modifications as to its form and-if, need be, draw the arbitrator's attention even to points connected with the merits of the case, but with due regard to the arbitrator's liberty to decide. No award shall under any circumstance be issued until approved as to its form by the Court of Arbitration. It is true that there is no similar provision contained in the Arbitration Act, 1940, but even under this Article it is the arbitrators who are clothed with the power to decide a dispute and it only confers power upon the Court of Arbitration to make a request to the arbitrators to review their decision affecting inter alia matters relating to the merits of the case. Reliance was placed by Mr. Bhabha upon the provisions of s. 16 of the Arbitration Act, 1940 under which the Court is empowered to remit the award to the arbitrator under the circumstances therein laid down. Mr. Bhabha is right that s. 16 does not permit the Court to remit the award to the arbitrator in order that it may be reconsidered by the arbitrator on the merits of the case, but we do not consider the provisions of Article 26 as being inconsistent with the provisions of s. 16 of the Arbitration Act, 1940. It confers an added power upon the Court of Arbitration. It is by agreeing to these rules that both the parties have agreed to the nature and the extent of the power that may be exercised by the Court of Arbitration or by the arbitrators and once the parties have agreed thereto, they cannot make a grievance in respect thereof, until it is specifically pointed out that these provisions are clearly inconsistent with any of the provisions of the Arbitration Act, 1940.
42. Article 29 provides for irrevocability and enforceability of the award. The argument of Mr. Bhabha is that by making the award final and irrevocable a party is deprived of a right under s. 30 of the Arbitration Act, 1940 to make an application for setting aside the award. We do not consider that the provisions of Article 29 are so comprehensive as to deprive a party of that right. If any of the grounds specified in s. 30 exists it will be open to the parties notwithstanding the provisions of Article 29 to make an application to the Court to have the award set aside. The jurisdiction of the Court to set aside the award if a proper ground is made out is not taken away by this Article.
43. Lastly, reference was made to Article 30, which provides for deposit of the award. Under this Article all awards made in accordance with the rules are to be deposited with the Secretariat and the arbitrator and the Secretariat shall give the parties every assistance in legally filing the award. We see nothing in the provisions of Article 30 which can be regarded as inconsistent with any of the provisions of the Arbitration Act, 1940. This is merely a ministerial provision and the question of it being inconsistent with the provisions of the arbitration act does not arise. We are, therefore, unable to accept the contentions of Mr. Bhabha that any of the rules relied upon by him is void as being inconsistent with the provisions of the Arbitration Act, 1940. We are also of the view that even if any of the rules so framed is inconsistent with the law of the country by which arbitration proceedings are to be governed, then such rule has to be ignored and the arbitration proceedings are to be conducted in accordance with the provisions of the rest of the rules. Such a result is not likely to affect the validity of the arbitration agreement and does not render the arbitration agreement invalid.
44. The next contention of Mr. Bhabha was that by prayers (a) and (b) the plaintiffs are seeking a declaratory relief and injunction; that such reliefs can only be granted by the Court having regard to the provisions of the Specific Relief Act and they cannot be granted by the arbitrators. The question whether an arbitrator acting within the provisions of the Arbitration Act, 1940 can grant relief by way of specific performance was considered by me sitting as a single Judge in Erach F.D Mehta v. Minoo F.D Mehta† . 1969 Award Petition No. 41 of 1969, decided by Kantawala J., on August 28.September 1, 1969 Unrep... Mr. Bhabha appeared for one of the parties in that matter and advanced the same arguments which are advanced by him before us. In short the view taken in that decision is that all matters of a civil nature, which can form the subject-matter of a suit within the meaning of s. 9 of the Code of Civil Procedure can be referred to arbitration; that the arbitrator will have jurisdiction even to grant a relief which can normally be granted by the Court under the Specific Relief Act. As pointed out in Halsbury's Laws of England, third ed. Vol. 2, page 6,
“The dispute or difference which the parties to an arbitration agreement agree to refer must be of a justiciable issue triable civilly. A fair test of this is whether the difference can be compromised lawfully by way of accord and satisfaction.”
45. Applying this test there can be no doubt that a dispute relating to a declaratory relief and injunction can be compromised lawfully by way of accord and satisfaction. A reference was made in my decision to the observation of Tucker L.J in Chandris v. Isbrandtsen-Moller Co. Inc. . [1951] L.R 1 K.B 240. It is there stated (p. 262):
“…To that there are, of course, certain well-known exceptions, such as the right to grant an injunction, which stand on a different footing; one of the reasons why an arbitrator cannot give an injunction is, of course, that he has no power to enforce it; but such an objection does not apply to the award of interest.”
46. So far as the award granting an injunction is concerned, in this country there is no difficulty in enforcing it because no award simpliciter is enforceable unless a decree in terms of the award has been passed under the provisions of the Arbitration Act, 1940. Once a decree in terms of the award has been passed, the award granting injunction is merged in the decree and the decree granting injunction can always be enforced. In fact in Lakshmi Narain v. Bagh-bir Singh . [1956] A.I.R Punj. 249., Harnam Singh, J. rejected the contention that suits in which granting of relief is entirely within the discretion of the. Court cannot be referred to arbitration. The learned Judge there even went to the extent of saying that a suit for mandatory injunction can be referred to arbitration. There is nothing in the provisions of the Arbitration Act, 1940 which goes to suggest that a relief which may be granted by the Court under the Specific Relief Act cannot be granted by the arbitrator if the parties decide to have the dispute relating to such relief referred to arbitration. In our opinion, if a proper case is made out it will be permissible to an arbitrator acting within the provisions of paragraph 12.2 of the agreement to grant the relief in terms of prayers (a) and/or (b) or such part thereof as may be admissible.
[His Lordship after considering a contention of the plaintiffs not material to this report, proceeded.]
47. Lastly, it is urged that allegations of fraud are made by the plaintiffs against the defendants in the matter of submission of returns by them for the assessment years 1966–1967 and 1967–1968. The submission was that when such allegations of fraud are made the Court in exercise of its discretion should decline to pass an order for the stay of suit under s. 34 because it is eminently desirrable that allegations as to fraud ought to be investigated by the Court of Law rather than by the arbitrator. In the first place, except for labelling the conduct of the defendants as fraudulent, there is no plea as to fraud at all. The entire claim in the plaint is founded upon a cause of action flowing from the terms of the contract. Their case is that upon a true construction of the provisions of paragraph 6.1 of the agreements they are not liable to pay the tax which they have paid under protest and they are entitled to refund of the same.
48. Their case is that in submitting the returns of income for these two years they have included therein the amounts which upon a true construction of the contract ought not to have been included therein and the liability for tax by reason of such inclusion of the income cannot be foisted upon the plaintiffs in view of the provisions of paragraph 6.1 of the agreements. Such inclusion is only labelled by them as fraudulent. Actually the question at issue between the parties is that if regard be had to the terms of the contract, whether the returns of income submitted for these two years by the defendants were proper and legal or whether they were contrary to the terms thereof. Directly speaking, no question of fraud arises in such a case.
49. Even apart from that, it is not in every case where an allegation of fraud is made, that the question of exercise of discretion by a Court under s. 34 of the Act arises. Reference can be made to the decision of the Patna High Court in Narsingh Prasad Boobna v. Dhanraj Mills . 1942 I.L.R 21 Pat. 544.. The Division Bench of the Patna High Court in this case has taken the view:
“Where the person opposing the application to stay a civil suit is charged with fraud, the Court will invariably refuse to stay the proceedings at the request of such a person. A charge of fraud is a very serious matter and any body charged with it has a right to have such a charge investigated by the Court.
Where the party resisting an application to stay a civil suit is the party making a charge of fraud, different considerations arise as the person charged does not desire trial by a Civil Court. In such a case the Court will stay the suit unless a prima facie case of fraud is made out.”
50. This is not a case where the plaintiffs want their conduct to be cleared on the ground of allegations of fraud which are made against them. Actually the only plea as to fraud is that the returns submitted by the defendants are not in accordance with the rights and obligations of the parties under the two agreements and they are made to pay the amounts of tax which strictly upon a true construction thereof they are not liable to pay. In such a case there is no ground made out for the Court in exercise of its discretion to decline to pass an order for stay of the suit, even though the defendants satisfied all the conditions laid down in s. 34 of the Arbitration Act, 1940.
51. In the result, the appeal fails and is dismissed with costs. Even though this appeal is from an order passed on a Notice of Motion it has been argued at considerable length. Even in the trial Court costs have been awarded to the defendants on a long cause scale with one counsel allowed. We are of the view that even so far as this appeal is concerned, the costs should be awarded on the same scale. The appellants will be liable to pay the costs of the appeal on a long cause scale with one counsel allowed. Liberty to the respondents' attorneys to withdraw the sum of Rs. 500 deposited towards security for costs of the appeal. Appeal dismissed.
Arbitration Act, 1940,