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.

The SC upheld the maintainability of a petition under Section 20 of the Indian Arbitration Act concerning a contract dispute. The court rejected arguments ... Maintainability of the petition under Section 20 of the Indian Arbitration Act - right to or acquisition of property abroad - Seller invoked the arbitration clause of the agreement and Bye-law 38-A of the Bye-laws of the East India Cotton Association, Ltd., Bombay and moved the Bombay High Court - legal existence of the agreement including the arbitration clause - vagueness and uncertainty arising from the use of the phrase 'subject to the usual force majeure clause' - expression 'force majeure' - lex loci contractus or lex loci solutionis. HELD THAT:- The latest case of the House of Lords is Adamastos Shipping Co. Ltd. v. Anglo-Saxon Petroleum Co. Ltd.. There, the clause was 'This bill of lading', whereas the document to which it referred was a charter-party. Viscount Simonds summarised all the rules applicable to construction of commercial documents, and laid down that effort should always be made to construe commercial agreements broadly and one must not be astute to find defects in them, or reject them as meaningless. Applying these tests to the present case and in the light of the provisions of s. 29 of the Indian Contract Act, it is clear that the clause impugned is capable of being made certain and definite by proof that between the parties or in the trade or in dealings with parties in British East Africa, there was invariably included a force majeure clause of a particular kind. In our opinion, the contract was not void for vagueness or uncertainty by reason of the reference in the terms stated, to the force majeure clause. Mr. Daphtary posed the question as to on whom was the burden of proving the usual force majeure clause. If the agreement is not void for uncertainty, that question would be a matter for the decision of the arbitrators. It is too early to say by what evidence and by whom the usual force majeure clause must be established. Under clause 6, the sellers had an absolute discretion either to carry over the goods or to insist on delivery being taken. By this letter, they have said that, if necessary, that is to say, if the buyers find it difficult to supply the number of the import licence, the contract would be carried over to March and April. By this amendment, the sellers surrendered to a certain extent their absolute discretion. The clause means that the contract was not extended to March and April, but that the sellers would extend it to that period, if occasion demanded. Since both the parties agreed to this letter and the buyers confirmed it, it cannot be said that there was no consensus ad idem, or that the whole agreement is void for uncertainty. If the parties do not agree, the Court may be required to make a decision as to who should be selected as an arbitrator, and that may be a function either judicial, or procedural, or even ministerial; but it is unnecessary to decide which it is. In the present case, the parties by their agreement have placed the power of selecting an arbitrator or arbitrators (in which we include also the umpire) in the hands of the Chairman of the Board of Directors of the East India Cotton Association, Ltd., and 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 our opinion, there is no impediment to action being taken under s. 20(4) of the Arbitration Act. In our opinion, the words of the Bye-law 'arising out of or in relation to contracts' are sufficiently wide to comprehend matters, which can legitimately arise under s. 20. The argument is that, when a party questions the very existence of a contract, no dispute can be said to arise out of it. We think that this is not correct, and even if it were, the further words 'in relation to' are sufficiently wide to comprehend even such a case. In our opinion, this argument must also fail. Where the parties have expressed themselves, the intention so expressed overrides any presumption. Where there is no expressed intention, then the rule to apply is to infer the intention from the terms and nature of the contract and from the general circumstances of the case. In the present case, two such circumstances are decisive. The first is that the parties have agreed that in case of dispute the Bombay High Court would have jurisdiction, and an old legal proverb says, 'Qui eligit judicem eligit jus.' 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. In our opinion, in this case, the circumstances clearly establish that the proper law to be applied is the Indian law. In the result, the appeal fails, and is dismissed with costs. 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.