Foreign arbitration clauses require concluded agreement and may be refused where discretionary stay is unjustified

A foreign arbitration clause will not bind parties unless there is consensus ad idem and the clause forms a concluded part of the bargain. Here, contemporaneous objections to foreign arbitration, admitted receipt of those objections, and the parties' later conduct showed that no binding arbitration agreement was established. Even on the assumption of an arbitration clause, stay of the suit remained discretionary and was refused because the dispute was closely connected with India, the evidence was located in India, foreign arbitration would be disproportionately burdensome, and the statutory basis for stay under the Arbitration (Protocol and Convention) Act, 1937 was unavailable absent a submission to arbitration under the agreement.

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Issues: (i) Whether the sub-contract contained a concluded and binding arbitration agreement between the parties; (ii) Whether, even assuming an arbitration clause, the suit ought to have been stayed in the exercise of discretion or under the relevant arbitration statutes.

Issue (i): Whether the sub-contract contained a concluded and binding arbitration agreement between the parties.

Analysis: The arbitration clause was contained in a draft sub-contract signed abroad, but the appellant contemporaneously objected to foreign arbitration by letter and telegram and sought deletion of the clause. The respondent's own affidavit admitted receipt of those communications, and the later conduct of the parties showed that the objection was never answered. On the evidence, the parties were not ad idem on the arbitration clause, and the disputed clause could not be treated as a concluded part of the bargain.

Conclusion: There was no concluded arbitration agreement binding the appellant.

Issue (ii): Whether, even assuming an arbitration clause, the suit ought to have been stayed in the exercise of discretion or under the relevant arbitration statutes.

Analysis: Grant of stay, even where arbitration is relied upon, remains discretionary and must be governed by sound judicial principles. The Court found that the entire evidence was in India, the contract and cause of action were substantially connected with India, the claim was small compared with the heavy expense of Paris arbitration, foreign exchange considerations were material, and the respondent appeared to be using foreign arbitration to hinder rather than genuinely resolve the dispute. It also held that Section 3 of the Arbitration (Protocol and Convention) Act, 1937 did not apply because there had been no submission to arbitration pursuant to the agreement, and the special Act could not support the stay sought.

Conclusion: The stay of the suit was unjustified and could not be sustained either on discretion or under the applicable arbitration legislation.

Final Conclusion: The stay order was set aside and the suit was directed to proceed, leaving the appellant successful on the main appeal while the connected appeal was not pressed.

Ratio Decidendi: A foreign arbitration clause will not be enforced by stay unless it is a concluded agreement and the case is a proper one for discretionary relief; where consensus ad idem is absent or strong cause exists against stay, the court may refuse to compel resort to foreign arbitration.

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