1961 (2) TMI 75 - SC - Indian Laws

Supreme Court validates arbitration petition under Section 20 despite force majeure clause uncertainty arguments

DHANRAJAMAL GOBINDRAM Versus SHAMJI KALIDAS & CO.

DHANRAJAMAL GOBINDRAM Versus SHAMJI KALIDAS & CO. - 1961 AIR 1285, 1961 (3) SCR 1020 Issues Involved:1. Maintainability of the petition under Section 20 of the Indian Arbitration Act.2. Legality of the contract under the Foreign Exchange Regulation Act and the Import Trade Control Act.3. Validity of the arbitration clause in the agreement.4. Vagueness and uncertainty of the contract terms.5. Applicability of the Indian law versus British East African law.Detailed Analysis:1. Maintainability of the Petition under Section 20 of the Indian Arbitration Act:The sellers invoked the arbitration clause and moved the Bombay High Court under Section 20 of the Indian Arbitration Act. The buyers resisted the petition, arguing that the dispute about the legality or validity of the contract, including the arbitration agreement, could only be considered under Sections 32 and 33 of the Arbitration Act by the Court, not by the arbitrator. The Divisional Bench of the High Court of Bombay held that the petition under Section 20 was maintainable. The Court decided that even if the arbitration agreement was challenged, the Court could still decide on its validity before making a reference to arbitration.2. Legality of the Contract under the Foreign Exchange Regulation Act and the Import Trade Control Act:The buyers contended that clauses 6 and 7 of the contract were unlawful, violating the Foreign Exchange Regulation Act, 1947, and the Import Trade Control Act. The Court examined Section 21 of the Foreign Exchange Regulation Act, which provides that an agreement is not invalid if it includes a term that the act shall not be done unless permitted by the Reserve Bank. The Court concluded that the contract was not void for illegality as it was saved by Section 21, which allows for the implied term that the acts prohibited by the Act shall not be done without permission.3. Validity of the Arbitration Clause in the Agreement:The buyers argued that the arbitration clause was not binding due to the alleged invalidity of the contract. The Divisional Bench held that the arbitration clause was valid and enforceable. The Court directed that the arbitration agreement be filed and the dispute referred to arbitrators in accordance with Bye-law 38-A of the East India Cotton Association, Ltd., Bombay.4. Vagueness and Uncertainty of the Contract Terms:The buyers contended that the contract was void for vagueness and uncertainty, particularly due to the phrase 'subject to the usual Force Majeure Clause' and the words 'if necessary' in the letter dated November 30, 1957. The Court held that the term 'usual Force Majeure Clause' was capable of being made certain by evidence about a force majeure clause that was in contemplation of the parties. The words 'if necessary' were interpreted to mean that the sellers would extend the contract period if the buyers found it difficult to supply the import license number. Therefore, the contract was not void for vagueness or uncertainty.5. Applicability of the Indian Law versus British East African Law:The buyers argued that the law governing the contract should be the law of British East Africa, where the contract was to be performed. The Court held that the proper law to be applied was the Indian law, as the parties had agreed that the Bombay High Court would have jurisdiction and the arbitration was to be conducted in India. The Court cited the legal principle 'Qui eligit judicem eligit jus,' meaning that the choice of a particular country's courts implies the application of that country's law.Conclusion:The appeal was dismissed, and the judgment of the Divisional Bench of the High Court of Bombay was upheld. The contract was not void for illegality, vagueness, or uncertainty. The arbitration clause was valid, and the petition under Section 20 of the Indian Arbitration Act was maintainable. The proper law applicable to the contract was Indian law.