1980 (10) TMI 198 - SC - Indian Laws

Supreme Court clarifies arbitration agreement requirements and jurisdiction under Arbitration Acts

RAMJI DAYAWALA & SONS (P) LTD. Versus INVEST IMPORT

The Supreme Court held that there was no concluded arbitration agreement between the parties due to a lack of consensus ad idem. The Court found that the ... Whether the Court was justified in the facts and circumstances of the case in exercising its discretion in favour of the respondent? Held that:- Section 3 of 1937 Act is in pari materia with s. 3 of 1961 Act. It, therefore, becomes crystal clear that s. 3 of the 1937 Act would only be attracted if there is a submission pursuant to an agreement to that effect. In fact, the decision in V/O Tractoro-export, Moscow, (Supra) made it necessary for the Parliament to amend s. 3 of the 1961 Act. In this case we are concerned with s. 3 of the 1937 Act which is not amended. It must, therefore, receive the same interpretation which an identical provision received at the hands of this Court. Viewed from that angle, in this case while there is an agreement as contemplated by First Schedule to 1937 Act, there is no submission made in pursuance of such agreement and, therefore, the application of the respondent could not have been entertained under s. 3 of the 1937 Act. As far as the 1961 Act is concerned, Mr. Majumdar conceded that Yugoslavia has not ratified the protocol pursuant to which 1961 Act was enacted and, therefore, the respondent cannot maintain its application under s. 3 of the 1961 Act. Having examined the matter from all angles it is clear that both the learned single judge and the division bench of the High Court were in error in granting stay of the suit in this matter and, therefore, Civil Appeal is allowed and the stay of suit granted by the learned single judge and affirmed by the division bench of the Calcutta High Court is vacated. Issues Involved:1. Concluded arbitration agreement2. Discretionary jurisdiction to stay the suit3. Applicability of the Arbitration (Protocol and Convention) Act, 19374. Jurisdiction under Section 34 of the Arbitration Act, 1940Detailed Analysis:1. Concluded Arbitration Agreement:The primary contention was whether there was a concluded arbitration agreement between the parties to refer disputes arising out of the sub-contract dated July 10, 1961, to arbitration. The appellant argued that there was no such concluded agreement, while the respondent contended otherwise.- Sub-contract and Arbitration Clause: The sub-contract signed by both parties included an arbitration clause referring disputes to the International Chamber of Commerce in Paris. The appellant's Managing Director signed the sub-contract but immediately objected to the arbitration clause through a letter and a subsequent cable, suggesting arbitration in India instead.- Evidence and Admission: The High Court initially found that the letter and cable were not received by the respondent. However, the Supreme Court noted that an affidavit by the respondent's Manager admitted the receipt of these communications, which indicated the appellant's objection to the arbitration clause.- Conclusion: The Supreme Court concluded that there was no consensus ad idem (meeting of minds) regarding the arbitration clause, and thus, there was no concluded arbitration agreement.2. Discretionary Jurisdiction to Stay the Suit:The Court examined whether the High Court was right in exercising its discretion to stay the suit filed by the appellant.- Section 34 of the Arbitration Act, 1940: The Court noted that granting a stay under Section 34 is discretionary. The burden of proof lies on the party seeking the stay to establish facts warranting such discretion.- Factors Considered:- The entire contract, including the sub-contract, was executed in India, and all evidence was located in India.- The cost of arbitration in Paris would be disproportionately high compared to the claim amount.- Restrictions on foreign exchange availability were a relevant consideration.- The respondent's insistence on arbitration appeared to be aimed at stifling the appellant's claim rather than resolving the dispute on principle.- Conclusion: The Supreme Court found that the High Court had misdirected itself by considering extraneous factors and not adhering to judicial principles. The stay was thus vacated.3. Applicability of the Arbitration (Protocol and Convention) Act, 1937:The appellant argued that the Court could not invoke its inherent jurisdiction under Section 151 of the Code of Civil Procedure due to the provisions of the 1937 Act.- Section 3 of the 1937 Act: This section applies if there is a submission made in pursuance of an agreement to which the Protocol set forth in the First Schedule applies. The Court noted that while there was an agreement, there was no submission pursuant to that agreement.- Conclusion: The application for stay could not be entertained under Section 3 of the 1937 Act as there was no submission made in pursuance of the arbitration agreement.4. Jurisdiction under Section 34 of the Arbitration Act, 1940:The appellant contended that Section 34 of the Arbitration Act, 1940, was not applicable as this was a foreign arbitration agreement.- Assumption for Argument: The Supreme Court assumed for the sake of argument that Section 34 would apply even to foreign arbitration agreements.- Conclusion: Given the findings on the lack of a concluded arbitration agreement and the improper exercise of discretion by the High Court, the stay of the suit was vacated.Final Judgment:The Supreme Court allowed the appeal, vacating the stay of the suit granted by the High Court. The suit was directed to proceed from the stage where it was stayed, with an emphasis on expeditious disposal. The appeal was allowed with costs throughout.