The Indo Pakistan Corporation Ltd. vs. Respondent: The K.C. Sethia Ltd.

HIGH COURT OF EAST PAKISTAN

Appeal from Original Order No. 118 of 1953

Decided On: 09.03.1955

Appellants: The Indo Pakistan Corporation Ltd.
Vs.
Respondent: The K.C. Sethia Ltd.

**Hon’ble Judges:**Amin Ahmed and Chowdhury, JJ.

Counsels:
For Appellant/Petitioner/Plaintiff: Nirmal Chandra Nandi and Sirish Cumar Sen

For Respondents/Defendant: A.F.M. Mesbahuddin

JUDGMENT

Amin Ahmed, J.

1. This appeal is on behalf of the plaintiff and it is directed against a decision of the Subordinate Judge second Court, Dacca, allowing an application under Section 34 of the arbitration Act of 1940 for staying a suit. The facts material for the purpose of this appeal may be briefly stated as follows: The plaintiff is a limited company carrying on business of export and import and shipment of jute and jute cuttings. The defendant which is also a limited company entered into several contracts with the plaintiff to effect sales of jute and jute cuttings and in pursuance of certain contracts relating to sale of jute and jute cuttings during the years 1950 to 1952 several sales were effected. These contracts relating to sale purported that the plaintiff sold and the defendant bought from the plaintiff various quantities of raw jute on the terms and conditions set out in the said contracts. One of the terms of the contract on which the defendant relies is the term relating to arbitration in case of dispute between the parties to the contracts. And when the plaintiff instituted the present suit for account the defendant made an application under section 34 of the arbitration Act for stay of the suit. The material terms of the arbitration clause in the contract relating to sale and purchase of jute art as follows:–

“(a) Any dispute whatever arising out of or in relation to this contract or its construction or fulfillment shall be referred to arbitration in England in accordance with the Bye laws of the Association in force for the time being. arbitration may be claimed whenever and as often as disputes arise, and may also be claimed if any dispute or matter has not been completely decided by any previous award but on claim for arbitration whatsoever is admissible after six months from the final date of landing or if the steamer do not arrive from the date on which in normal course she should have reached her destination except by written permission of the Committee.”

“(b) If the dispute be in respect of quality and/or condition buyer’s claim for arbitration must be received by the seller or his London representative within 21 days from the final day of discharge of the steamer at the port of destination and the claim prosecuted without undue delay, otherwise the Jute must be accepted without allowance. X X X X "

2. The defendant, as already mentioned, strongly relied on the first clause set out above. The plaintiff maintained that the present dispute was not covered by the arbitration clause as on the basis of a separate oral agreement of the parties entered into in 1950 the suit was one for condition of account by the defendant as an agent of the plaintiff in respect of the dealing and transactions including undue profits made by the defendants in respect of the written contracts and in support of their respective contentions the defendant and the plaintiff filed affidavits and counter-affidavits. The learned Subordinate Judge holding that the subject matter of the suit was covered by the arbitration clause stayed the suit. Hence the present appeal.

3. Mr. Nandi, who appears for the appellant argues that the learned Subordinate Judge erred in holding that the subject matter of the present suit which is for account between the principal and the Agent, pure and simple, on the basis of an oral agreement is covered by the arbitration clause of the written contracts. We have been taken through the plaint by the learned Advocate and our attention has been drawn to the allegations and prayers in the plaint. Our attention has been particularly drawn to paragraphs 2 relating to the terms of oral agreement and condition of account and to paragraphs 11, 12 and 13 in which it is alleged that the defendant has acted as agent of the plaintiff and in doing so fraudulently and illegally made secret profits, to paragraph 15 relating to cause of action and to paragraph 16 in which the prayers of the plaintiff are mentioned. Mr. Nandi has also made a point that the defendant firm themselves went to the Architration of London Jute Association and they also expressed an opinion that the dispute was not a dispute covered by the arbitration clause of the contract at sought to be established by the defendant respondent, In this connection Nr. Nandi refers us to Annexure, the true copy of the opinion of the arbitrator dated the 14th April, 1953 included in the affidavit sworn on the 23rd April 1953 by one Ram Jiwan Deora on behalf of the defendant.

4. In support of his arguments Mr. Nandi among other cases, has strongly relied on the case of Johurmull Parssram & Ors. Vs. Louis Dreyfus Co. Ltd., reported in 52 C.W.N. 137 (Judgment of Harries C.J. and Mukherjeey) and also on the case of Harinagar Suger Mills Ltd., Vs. Skoda (India) Ltd., reported in 41 C.W.N. 568 and on the case of Bonnin Vs. Neame reported in (1910) Chancery Division 732.

5. Mr. Mesbahuddin, who appears for the respondent contends that the terms of the arbitration clause are so comprehensive and wide that they do include a dispute of the nature included in the present suit. The learned Advocate relies on the words ‘whatever’, ‘arising out of, ‘in relation to’, which occur in the very first sentence of the arbitration clause and point is bade that the account and secret profits of the present suit are all in relation to and arise out of these written contracts and therefore, it cannot be said that the matter in dispute is not covered by the arbitration clause.

6. Mr. Mesbahuddin, the learned Advocated for the respondent, in reply has relied on the case of Chandanmull Jhaleria and others Vs. Clive Mills Co. Ltd., and others reported to (1948) A.I.R. Cal. 257 and the case of Balabue Agarwalla Vs. Lashminarain Jute Manufacturing Co. Ltd., reported in 51 C.W.N. (sic).

7. In determining whether a suit should be stayed under section 34 of the arbitration Act case has to go by the provisions of section 34 of the arbitration Act X of 1940. They are as follows:

“Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred any party to such legal proceedings may at any time before filing a written statement or taking any other steps in the proceedings apply to the judicial authority before which the proceedings are pending to the stay proceedings; and if satisfied there is no sufficient reason why the matter should not be referred in accordance with the arbitration, agreement and that the applicant was, at the time when the proceedings were commenced and still remains ready and willing to do all things necessary to proper conduct of arbitration, such authority may make an order playing the proceedings.”

8. Similar are the provisions of section 4 of English arbitration Act. What the Court has to determine in proceedings of this nature is (1) what the dispute is (2) whether the dispute is covered by the terms of the arbitration clause in the contract. It is true that each case has to be decided on the terms of the arbitration clause and there are cases where the terms of an arbitration clause are so very comprehensive that even frustration of a contract is covered by an arbitration clause. But in interpreting the terms of arbitration clause in a contract court has to put reasonable construction on the terms and it cannot be said that because the words ‘in relation to’ or in connection with’ or ‘arising out of occur each and every matter which is in any way connected with the contract should be taken as the subject matter of arbitration clause. Keeping these principles in view we have to determine whether the present dispute is one which arise out of this contract or is in relation to this contract. As we have already stated that i(sic) case that the plaint, as it stands, is a plain in a suit for account by the principal, the plaintiff against the agent the defendant and although the defendant has stated in his affidavit that this is all untrue, at this stage, of these proceedings it is not for the Court to adjudicate the case on its merits and demerits and the court should go by the allegations in the plaint as pleaded, however, frivolous or doubtful they may be. In this connection the following passage in the case of Johurmull Parasram & Ors. Vs. Louis Dreyfus & Co. Ltd., reported in 52 C.W.N. 137 may he referred to.

“The learned single Judge realized that the claim as pleaded was not a claim under the contract, but he asked himself whether that was sufficient to enable him to hold that the suit should not be stayed. The learned judge was of the view that he had to ascertain what in substance was the claim. His view was that in substance this was a claim for damages under the contract, though it was a claim very carefully camouflaged as a claim for damages for fraud and a money claim by way of quantum meruit as it is pleaded.

If a court is entitled to go into the question what was substantially the nature of this claim then Clough J’s decision may well be right. But in my view a court is not entitled at this stage to go into such question. The Court must consider the suit as it is pleaded and framed. If it comes to a conclusion that such a suit as pleaded is a suit on the contract or arising out of the contract then the suit should be stayed. But on the other hand if the suit as pleaded is independent of the contract then the Court has no power to stay the suit though is satisfied that the frame of the suit is merely a means of avoiding the consequences of alleging the true nature of the claim.”

9. In the above case Harries, C.J. has referred to the decision in the case of Monro Vs. Bognor Urban District Council reported 3 K.B.D. (1915). It is not necessary to deal with the facts of this latter case at length as they have been set out by Harries, C.J. in the case reported in 52 C.W.N. 137 mentioned above In that case in the written contract that was entered into by the plaintiff, a contractor with the defendants for the construction of certain sewerage works there was an arbitration clause to this effect: That if at any time any question dispute or difference shall arise between the council or their engineer and the contractor upon or in relation to or in connection with the contract the matter shall be referred to and determined by the engineer. After the plaintiff had done certain work under the contract he refused to complete the work alleging that he had been induced to enter’ into the contract by fraudulent misrepresentation as to the nature of the subsoil of the ground where the work was to be done and he brought an action to recover damages for the alleged misrepresentation and to have the contract declared void and the defendant made an application under section 4 of the arbitration Act (English Act). In that case their Lordships held that the dispute was not a dispute “upon or in relation to or in connection with the contract” and observed as follows:–

“It is, therefore, in no sense an action on the contract at all. Nor do I think that it is an action in relation to or in connection with the contract. In one sense it is an action in relation to and in connection with the contract because if there had never been any contract there would never have been any cause of action, there would never have been any representation and there would never have been any claim for damages. But it is not in relation to or in connection with the contract, in my opinion, within the meaning of the arbitration clause. That being so, I think the action is with reference to matter wholly outside the powers of the arbitrator, and with which he could not possibly deal.”

10. Mr. A.F.M. Mesbahuddin, appearing for the respondent, has relied on the case of Chandanmull Jhaleria and others Vs. Clive Mills Co. Ltd., reported in A.I.R. (1948) Cal. 257, mentioned above, which is also a decision of Harries C.J. and B.K. Mukherjee. It is true that in that case Harries, C.J. held that considering the terms of arbitration clause, the disputes which involved the applicability of the doctrine of frustration of contract and the avoidance of contract on ground of mutual mistake could be referred to arbitration as they were covered by arbitration clause. But if we refer to the terms of the arbitration clause we find that the terms of arbitration clause in the 10 suits under appeal are very comprehensive and the are not the same as the terms of the present case. The terms in two suits out of 10 suits which are all stayed by the Court of the first instance (Das, J.) in that case were “Any dispute whatsoever arising out of or in any way relating to this contract or to its construction or fulfillment, or payment, between the parties hereto and whether arising before or after the date of the expiration of this contract will be referred to the arbitration of two persons one to be appointed by each party.”

11. “In the other 8 suits which were the subject matter of the same appeal before Harries C.J. and Mukherjee, J. the terms were:–

“All matters, questions, disputes difference and/ or claims arising out of and/ or concerning and/ or in connection with and/ or in consequence of or relating to this contract, whether or not the obligations of either or both parties under this contract be subsisting at the time of such dispute and whether or not this contract has been terminated or purported to be terminated or completed shall be referred to the arbitration of Bengal Chamber of Commerce under the rules of the Tribunal of arbitration for the time being in force and according to such rules the arbitration shall be conducted.

12. Balabux Agarwalla Vs. Lachminarain Jute Manufacturing Co. Ltd., reported in 51 C.W.N. 863 is also a case in which it was held by Das J. that in a contract there may be an arbitration clause so widely worded that even if the substantive contract came to an end by frustration, the arbitration clause still survives. In our opinion, the last two cases relied upon by the learned Advocate for the respondent do not help the respondent. We respectfully agree with the observations of Harries, C.J. made in the case of Johurmull Parasram & Crg. Vs. Louis Dreyfus & C. Ltd., reported in 52 C.W.N. 137 relied upon by the learned Advocate for the appellant. There is no escape from the fact that the plaintiff claims account from the defendant on the allegation that the plaintiff and the defendant entered into a separate oral agreement for account and the defendants as his agent failed to render such account and on the pretext of the written contract, he has made secret profits. So far as the terms of written contract are concerned there is no dispute and the only dispute is that independently of the written contracts the defendant is alleged to have made undue profits and in contravention of the oral agreement he has also failed to render account. Whether the allegations are true or false as at this stage the court has to go by the allegations in the plaint, though the plaint may have been ingeniously drafted in order to avoid the con-sequences of alleging the true nature of the claim in the written contract in which the arbitration clause is incorporated. It also appears from paragraph 15 that the causes of action arose on the 15th November 1952 and the 12th December 1952 and on subsequent dates when the defendants refused to render account and as rightly pointed out by Mr. Nandi in paragraphs Nos. 11, 12 and 13 the plaintiff alleges that the defendant as agent has fraudulently and illegally made secret profits and has failed to render account and that according to oral agreement he is bound to render account. The plaintiff may succeed or fail in this suit for account filed by him as principal alleging that the defendant is his agent. But that is no ground for saying that the defendant is entitled to get stay on that ground at this stage. Under the law he has got the right to invite the court to adjudicate upon it and he cannot be compelled to go to the arbitration unless the matter of rendition of account is covered by the terms of the arbitration clause. It is perfectly plain that the jurisdiction of the court to stay proceedings in an action of the present nature arises only when the proceedings relate to matter agreed to be referred to the arbitration and when this arises the Court has to decide whether there is sufficient reason why the matter should not be referred to the arbitration. The particular claim in the present suit is a claim for account and it seems to us that this claim for account is not in relation to the written contract. It is a claim which may result in dealing in a particular way with the written contract but it is a claim which is founded upon and has relation to an oral agreement not expressed in written contract on which the parties have sought to express the terms of purchase and sale and arbitration. It appears to us that is not a question, “arising out of” or “in relation to” the written contract. It seems to be a question in relation to something outside the terms of the written contract, as a result of determining which something may have to be done to the terms of the written contract but that is merely incidental to the determination of the question. As we have already indicated the words of the terms of the written contract relied” upon by Mr. Mesbahuddin and that have been set out above are not such as to include anything that is done incidentally to the written contract. It would be absurd to argue or hold that because of these words in an arbitration clause in a written contract of purchase and sale of goods like the present one if the parties to such a contract in relation to or in connection with that written contract fall out in respect of their rights in land based on a separate oral agreement contingent on the performance of the written contract the dispute relating to the land being dispute in relation to or connected with the written contract should also be referred to the arbitrator. The terms of the contract should always be construed reasonably and such dispute as reasonably arises out of or relates to the terms of the contract themselves can only be referred to arbitration because of the terms like these in the arbitration clause and not each and every dispute, however indirectly, or remotely, they may be connected with the written contract. We can only respectfully refer to the observations of Pickford L.J. set out above and say that in one sense every dispute can be said to be a dispute in relation to or in connection with the contract as if there had never been any contract there would never have been any cause of action and there would never have been any claim.

13. For the reasons stated above the only course open to us is to allow this appeal and to hold the plaintiff’s present claim is not within the scope of the arbitration clause.

14. Hence we allow this appeal with costs and set aside the order of the Subordinate Judge staying the suit.

15. Le the records be sent down as early as possible.

Chowdhury, J.

I agree.