Arbitration clause cannot bar adjudication of excise duty liability when the issue requires court determination and third-party involvement.

An arbitration clause did not cover the fundamental question whether excise duty was payable on the goods supplied, because that issue was treated as a substantive question of law requiring adjudication by a competent court and involved the Central Government as a necessary party. The defendant-company was only a pro forma party on that controversy, so the suit could not be stayed under the arbitration clause. The stay application under the Indian Arbitration Act, 1940 was therefore unwarranted, and the dispute was held not referable to arbitration for the purpose of stalling the suit.

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Issues: Whether the suit was liable to be stayed under the arbitration clause and whether the dispute regarding liability to excise duty was referable to arbitration.

Analysis: The application for stay was under Section 34 of the Indian Arbitration Act, 1940. The arbitration clause was construed in the context of the agreement, and it was held not to extend to the fundamental question whether excise duty was payable on the goods supplied. That question was treated as an intricate issue of law requiring adjudication by a competent court, particularly because the Central Government was a necessary party for its determination. The defendant-company was regarded as only a pro forma party in relation to that controversy, and the suit could not be stifled on the basis of the arbitration clause.

Conclusion: The stay of suit was unwarranted and the dispute was not referable to arbitration.

Final Conclusion: The appeal succeeded, the stay order was set aside, and the suit was directed to proceed before the trial court in accordance with law.

Ratio Decidendi: A dispute involving the substantive question whether excise duty is payable, when its determination depends on parties outside the arbitration agreement and on a question of law not clearly covered by the clause, is not referable to arbitration for the purpose of staying the suit.

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