1989 (2) TMI 410 - SC - Indian Laws

Court upholds arbitration agreement, dismisses appeal, directs parties to arbitrate with retired Supreme Court Judge

I.T.C. LIMITED Versus GEORGE JOSEPH FERNANDES & ANR.

I.T.C. LIMITED Versus GEORGE JOSEPH FERNANDES & ANR. - 1989 AIR 839, 1989 SCR (1) 469, 1989 SCC (2) 1, JT 1989 (1) 552, 1989 SCALE (1) 283 Issues Involved:1. Validity of the arbitration agreement under Section 34 of the Arbitration Act, 1940.2. Jurisdiction of the court to decide the validity of the contract containing the arbitration clause.3. Whether the contract was void ab initio due to mutual mistake.4. Alleged illegality of the contract under the Import and Export Control Act.5. Arbitrability of the disputes under the charter party agreement.Issue-wise Detailed Analysis:1. Validity of the Arbitration Agreement under Section 34 of the Arbitration Act, 1940:The court examined whether the arbitration agreement within the contract was valid and binding. Section 34 of the Arbitration Act allows the court to stay legal proceedings if there is a valid arbitration agreement. The court held that the arbitration agreement must be valid for the stay to be granted. If the contract containing the arbitration clause is found to be void, the arbitration clause itself would be unenforceable.2. Jurisdiction of the Court to Decide the Validity of the Contract Containing the Arbitration Clause:The court has the jurisdiction to decide the validity of the contract containing the arbitration clause. It was emphasized that the court must ascertain whether there is a binding arbitration agreement before granting a stay. The court can decide the validity of the contract even if it involves incidentally deciding the validity of the arbitration agreement. This was supported by precedents such as Heyman v. Darwins and Jawaharlal Burman v. Union of India.3. Whether the Contract was Void Ab Initio Due to Mutual Mistake:The appellant argued that the contract was void due to mutual mistake regarding the operational condition of the trawlers. The court referred to Section 20 of the Indian Contract Act, which states that an agreement is void if both parties are under a mistake as to a matter of fact essential to the agreement. The court found no mutual mistake that would render the contract void. The alleged deficiency in the refrigeration system did not make the trawlers essentially different from what was agreed upon.4. Alleged Illegality of the Contract under the Import and Export Control Act:The appellant contended that the contract was illegal as it violated the conditions of the import licence. The court examined the conditions of the licence and the permission granted by the Chief Controller of Imports and Exports. It was held that there was no violation of the licence conditions or the Import and Export Control Act. The modifications to the contract did not render it illegal.5. Arbitrability of the Disputes under the Charter Party Agreement:The court analyzed whether the disputes raised in the suit were arbitrable under the arbitration clause of the charter party agreement. The clause covered disputes regarding the construction, meaning, effect, or rights and liabilities under the agreement. The court concluded that the disputes, except for the question of the contract's ab initio invalidity or illegality, were arbitrable. The arbitrator has the jurisdiction to decide the scope of his jurisdiction and the disputes arising from the contract.Conclusion:The appeal was dismissed as the court found no merit in the appellant's arguments. The arbitration agreement was valid, the disputes were arbitrable, and there was no mutual mistake or illegality that would render the contract void. The parties were directed to proceed with arbitration, with the appointment of a retired Supreme Court Judge as the arbitrator, if agreed upon.