1968 (9) TMI 120 - SC - Indian Laws

Arbitration Clause Upheld in Contract Dispute

Union of India (UOI) Versus Salween Timber Construction (India) and Ors.

Union of India (UOI) Versus Salween Timber Construction (India) and Ors. - 1969 AIR 488 (SC) Issues Involved:1. Jurisdiction of Arbitrators2. Scope of Arbitration Clause3. Interpretation of Contractual TermsDetailed Analysis:1. Jurisdiction of Arbitrators:The primary issue was whether the arbitrators had jurisdiction to adjudicate the claim regarding the excess quantity of timber allegedly delivered by the respondent firm but not inspected. The appellant argued that the dispute was not 'arising under the contract' or 'in connection with the contract' and thus fell outside the arbitrators' jurisdiction. The appellant contended that the claim should be treated as a transaction of involuntary bailment and not related to the performance of the contract, framing it as a tort of wrongful detention.The court found no justification for the appellant's argument. It held that the claim made by the respondent firm was indeed a claim arising out of the contract. The court emphasized that if recourse to the contract was necessary to determine the claim, the matter fell within the scope of the arbitration clause. This principle aligns with the precedent set in Hevman & Anr. v. Darwins Ltd., where it was established that disputes regarding breaches or performance under a contract fall within the arbitration clause.2. Scope of Arbitration Clause:The arbitration clause in question stated that any dispute arising under or in connection with the contract should be referred to arbitration. The court referred to several precedents to elucidate the scope of such clauses. In Stebbing v. Liverpool & London and Globe Insurance Company Ltd., it was held that an arbitrator had jurisdiction to decide on disputes arising out of the policy, including the validity of claims under the policy terms. Similarly, in Ruby General Insurance Co. Ltd. v. Pearey Lal Kumar & Anr., the court held that disputes requiring recourse to the contract terms fell within the arbitration clause's scope.Applying these principles, the court concluded that the dispute over the excess timber was within the scope of the arbitration clause, as resolving it required interpreting the contract terms.3. Interpretation of Contractual Terms:The court examined specific clauses of the contract to determine their relevance to the dispute. Clause 13(1) required the contractor to afford inspection facilities at its own expense. Clauses 13(4) and 13(5) dealt with the rejection of stores and the contractor's obligations in case of rejection. The appellant argued that the contract did not require the respondent to tender excess timber for inspection and that any excess delivery was beyond the contract's scope.The court, however, found that the dispute over the excess timber required interpreting these contractual terms. Since the respondent claimed that the excess timber was delivered to cover possible rejections and was not returned, the court held that resolving this claim necessitated examining the contract terms. Therefore, the dispute was deemed to arise out of the contract, falling within the arbitration clause's scope.Conclusion:The court held that the claim of the respondent firm was within the scope of the arbitration clause. The application made by the appellant in Suit No. 128 of 1963 was rightly dismissed by the Subordinate Judge. Consequently, the appeal was dismissed with costs.