Court Upholds Validity of Contract, Orders Arbitration

The court found the application was within the limitation period, the contract valid, and disputes referable to arbitration. The agreement was ordered to be filed, and arbitration was directed, appointing Mr. M. S. Joshi as the sole arbitrator with a set fee.

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Issues Involved:
1. Whether the arbitration agreements relied upon by the plaintiff are void on account of undue influence and misuse of fiduciary position or non-compliance with the provisions of the Companies Act.
2. Whether there is sufficient cause for refusing to make arbitration on account of the circumstance of the case including the allegation of the defendant that the claim is belated.
3. Is the main contract containing the arbitration clause without consideration and hence the arbitration clause cannot be acted upon.
4. Whether mere failure to pay the amount claimed amounts to a dispute which would attract the provisions of the Arbitration Act.
5. Whether the disputes raised do not fall within the arbitration clause.
6. Relief.

Detailed Analysis:

1. Limitation:
The official liquidator argued that the application was barred by limitation under Article 137 of the Limitation Act, 1963, which prescribes a three-year period from when the right to apply accrues. The contention was that the application should have been made within three years from June 16, 1967, but was filed on November 27, 1973. The court found this contention unsound, stating that the limitation period runs from when the "right to apply" accrues, which was when the company repudiated the firm's claim on April 29, 1971. Thus, the application was within the limitation period.

2. Validity of Contract:
The official liquidator claimed the agreement dated June 1, 1967, was void due to undue influence, misuse of fiduciary position, non-compliance with the Companies Act, and lack of consideration. The court noted that the board of directors had duly authorized the agreement, with Mehta Harnam Singh disclosing his interest and abstaining from voting, thus complying with Section 297 of the Companies Act. The court dismissed the plea of undue influence, misuse of fiduciary position, and fraud due to lack of particulars. The court also found that the firm had indeed injected Rs. 5,00,000 into the company, thus providing consideration. The argument that the contract required shareholder approval was dismissed, as neither the articles of the company nor statutory provisions required such approval.

3. Scope of Arbitration Clause:
The court examined whether the disputes fell within the arbitration clause, which stated that any dispute or difference regarding the terms of the agreement should be settled by arbitration. The court held that the disputes, including the claim for remuneration and the repudiation of the contract, were covered by the arbitration clause. The court found no sufficient cause to refuse arbitration, dismissing the plea of fraud due to lack of particulars.

4. Mere Failure to Pay:
The official liquidator argued that mere failure to pay did not constitute a dispute under the arbitration clause. The court disagreed, stating that the issue was not just non-payment but whether any amount was due to the firm, which was a substantial dispute suitable for arbitration.

5. Disputes Not Within Arbitration Clause:
The court found that the disputes, including the firm's entitlement to remuneration and the validity of the contract, were within the scope of the arbitration clause. The clause was broad enough to encompass disputes arising from the contract.

6. Relief:
The court ordered the agreement to be filed and referred the matter to arbitration. Mr. M. S. Joshi, a retired judge of the court, was appointed as the sole arbitrator. The fee was fixed at Rs. 4,000, to be shared equally by the petitioners and the official liquidator. The parties were directed to appear before the arbitrator on January 9, 1982.

Conclusion:
The court concluded that the application was within the limitation period, the contract was valid and enforceable, and the disputes were referable to arbitration. The matter was referred to arbitration, with Mr. M. S. Joshi appointed as the sole arbitrator.

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