RAMJI DAYAWALA & SONS (P) LTD. v. INVEST IMPORT

Citation: [1981] 1 S.C.R. 899

Court: Supreme Court of India

Bench: P.N. SHINGAL, D.A. DESAI

Case summary

The High Court was of the opinion that the appeals did involve sub&tantial questions of law and the case was a fit one for appeal to the Supreme Court and accordingly granted a certificate under Art....

Judgment text

899' RAMJI DAYAWALA & SONS (P) LTD. v. INVEST IMPORT October 9, 1980 · [P. N. SHINGHAL AND D. A. DESAI, JJ. ] Arbitration Act 1940, S. 34; Code of Civil Procedure 1908, S. 15; Arbitration (Protocol and Convention) A ct 1937, S. 3 ; & Foreign Awards (Recog- ,,, nition & Enforcement) Act, S. 3-Sub-contract between Indian . firm and foreign firm-Sub-contnact incorporating . an agreement to re. fer disputes to a foreign arbitral tribunal-After execution o~ agreement Indian firm repudiating the arbitration agreement-Suit for re'C:overy in High Court by Indian firm-Foreign firm contesting that suit to be stayed on account of arbitration clause in the agreement-Single Judge and Division Bench deciding stay of suit necessary-: Decision-Whether valid-power of court to stay suit-Exercise of discretion by trial court-Interference by appellate court.

The appellant (plaintiff), a private limited company, a labour contractor, entered into a sub-contract with the respondent (defendant), a Yugoslavia based company which in turn had entered into a contract with the State Electricicy Board for setting up a power station. The sub-contract dated July 10, 1961 between the appellant and the respondent incorporated a·n agreement to refer ~ll the disputes arising out of the sub-contract to arbitration by the International Chamber of Commerce in Paris with the application of Yugoslav materials and economical law. In carrying out the work undertaken under the sub-contract, the appellant claimed that it carried out some extra work for which it was entitled to recover extra amounts from the respondent, and as the claims were not satisfied or met with by the respo~dent, the appellant filed a civi\ suit on the original side of the High Court for recovery of the amount. On .

a notice of motion taken out by the appellant, the High Court granted an ad interim exparte injunction restraining the respondent from withdrawing the money due to it from the State Electricity Board. Pursuant to service of the aforesaid notice of motion' the respondent moved an application under sec. 151 of the Code of Civil Procedure, alleging in the petition for stay that the disputes and differences that arose were in respect of and/or relating to the sub-contract dat,ed July 10, 1961 and in view of the subsisting agreement to refer disputes or differences arising under or out of the sub-contract to arbitration, the suit filed by the appellant should be stayed. The appellant filed a counter-affidavit contending that there was no concluded agreement" between the parties to refer all the disputes arising out of the subcontract to arbitration and alleged that by letter dated July 10, 1961, the very date on which the sub-contract was entered into at Belgrade, the Managing [1981] 1 S.

C. R. Director of the appellant company informed the respondent that he had objected to the arbitration clause in the agreement. It was also averred that a cable was also sent by the Managing Director on reaching Bombay on July 13, 1961 requiring that the clause regarding arbitration be deleted. Second contention was that even if it is held that there is a subsisting arbitration agreement, having regard to all the circum&tances of the case, the discretion should · not be exercised in favour of· the defendant-respondent. The Single Judge granted ! he P an agreement as contemplated by First Schedule to the 1937 Act, there is no submission made in pursuance of such agreement and, therefore the application of the respondent could not have been entertained under section 3 of the, 1937 Act. [9280] CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 2407-2408 .. of 1968. From the Judgment and Order dated 1-12-1965 of the Calcutta: 1 High Court in Appeal Nos. 110-111/M P. K. Chatterjee and P. K.

Mukherjee for the Appellant. S. C. Majumdar, Arvind Kumar, S. Dasgupta, Mrs. L. Arvind· and Miss> Karabi Banerji for the Respondent. J The Judgment of the Court was delivered by DESAI, J. -Protracted, time consuming, exasperating and· atrociously expensive court trial:; impelled an alternative mode of resolution of disputes between the parties : arbitrate - don't litigate. Arbitration being a mode of resolution of disputes by a judge of the choice of the parties was considered preferable to adjudication of disputes by court. If expeditious, less expensive resolution of disputes by a judge of the choice of the parties was the consumation devoutly to be wished through arbitration, experience shows and this case illustrates that the hope is wholly belied because in the words 1 of Edmond Davis, J. in Price v. Milner, ( ) these may be disastrous proceedings. A petty labour contractor h'. i. search of its labour charges in a paltry amount of Rs. 4,25,343.

00 from a giant foreign engineering and construction company which had undertaken to erect a thermal power station at Barauni in Bihar State under a contract dated February 27, 1960, with Bihar State Electricity Board, filed a suit in the year 1963 which stands stayed without the slightest progress for the last 17 years and with end nowhere in sight. P1aintiff (appellant herein), a private limi1ed company, a labour contractor, entered into a sub-contract for erecting two complete radiation type steam boilers as part of Thermal power station at Barauni, with the defendant Invest-Import, a Yugos. lavia based company which in turn had entered into a contract with the Bihar State Electricity Board for setting up the power station. Plaintiff sub-contractor, pursuant to the sub-contract dated July 10, 1961, had to supply ski1led labour, unskilled labour and apprentice labour, to carry out the erection work and incidentally to do other things provided in the sub-contract. (1) [1966] 1 W. L.

R. 1235. . . ... R. D. & SONS v. INVEST IMPORT (Desai,!. ) 90 5 , I · The contract also provided for employing extra labour force as well as carrying out extra stipulated job for installation, substantial alterat_ion of dejgn etc. as and when desired and directed by the principal ' contractor, respondent herein. In carrying out the work undertaken A.. under' the sub-contract, the plaintiff claims that it carried out some extra work for which it was entitled to recover Rs. 70,000 from the respondent. There were also other claims made by the appellant which wire not satisfied or met with by the respondent with the result that the appellant filed suit No. 1359/63 on the original side of the High Court at Calcutta on August 1, 1963, to recover ~ Rs. 4,25,343. 00 f. rom the re~pondent. The split up of the total cl~im ~ has been set out m the particulars appended to para 16 of the plamt. # /' The appellant also annexed sub-contract between the appellant and ~.

the respondent as Annexure 'A' to the plaint. On August 2, 1963, -.. ,. · on a notice of motion taken out by the appellant, a learned single judge of the.. fligh Court granted an ad interim ex parte injunction restraining/ the respondent from withdrawing the money due to it from the Bihar State Electricity Board. ... Pursuant to serviCe of notice of motion taken out by the appellant, on August 8, 1963, the respondent appeared through one Ilija Kostantinovic, Manager of the respondent company posted at its office at 36, Ganesh Chandra Avenue, Calcutta, and moved an application purporting to be under s. 151 of the Code of Civil Procedure, contending, inter alia, that the sub-co! ltract between ihe E. appeHant and the respondent incorporates an agreement to refer all the disputes arising out of the. sub-contract to arbitration and. therefore, the suit should be stayed. The clause spelling out agreement to refer disputes to arbitration was reproduced in the petition.

1t reads as under : p "Any mutual disputes should be settled in mutual agreement, however, should they fail to reach an agreement in the way, both contracting parties accept the jurisdiction of the Arbitration by the Internationa1 Chamber of Commerce in Paris with application of Yogoslav materials and economical law". After setting out the background of dispuks between the parties, it was alleged in the petition for stay that in the circumstances set out in the petition, disputes and differences arose between the appellant and the respondent out of or in respect of :md/or relating to the sub-contract dated July 10, 1961, and in view ofthe subsisting agreement to refer disputes or differences arising under or out of the sub-contract between the parties to arbitration, the suit filed by the appellant should be stayed. It was also averred that if the provisions of Arbitration Act did not apply the Court should in 16-645 S. C. India/80 [1981] 1 S. C. R.

exercise of its inherent jurisdiction injunct the' plaintiff appellant from proceeding with the suit instituted by rt. There were further averments praying for vacating ad interim injunction granted by the High Court which are no more relevant. The respondent annexed to the petition for stay the sub-contract between the parties dated July 10, 1961, as also some correspondence that had ensued between the partie! >. Appellant filed a counter affidavit sworn by one Bhikhubhai Gourishankar Joshi who described himself as principal officer and constituted attorney of the appellant company controverting the averments made by the respondent in the petition seeking stay of the suit. The principal contention taken in the counter affidavit was that there was no concluded agreement between the parties to refer ·_,; all the disputes arising out of the sub-contract to arbitration as contended for and on behalf of the respondent. To substantiate this .

contention letter dated July 10, 1961, the very date on which the :sub-contract was entiered into between the appellant and the respondent, sent by the Managing Director of the appellant company as also a telegram sent by the same person on July 13, 1961, were annexed to the counter-affidavit. \ Ilija Kostantinovic, Manager of the respondent compan\r at Calcutta filed an affidavit in rejoinder in which there are certain ayerments which go to the root of the matter and, therefore, they IE may better be extracted here. They read as under : "5. With reference to the allegations contained in paragraph 4 of the said affidavit, I reiterate the statements contained in paragraphs 3 and 4 of the petition and I deny all allegations, which are contrary thereto and/or inconsistent therewith. 6.

With further reference to the allegations contained in paragraph 4- of the said affidavit, I say that after entering into the contract dated July 10, 1961, and after executing the same, the respondent purported to send a letter to the petitioner seeking to modify and/or delete the arbitration clause contained in the contract dated July 10, 1961, and also purported to send a cable to the petitioner. The petitioner never agreed to the modification and/or deletion of the arbitration clause as contained in the said contract or to the alleged arbitration clause suggested by the respondent". The petition for stay was set down for recording evidence. ·· One Panich Stojan son of Nikola Panich, Project Manager, Barauni Thermal Project, an employee of ! he respondent company was examined on behalf of the respondent. No oral evidence was offered R. D. & SONS v. INVEST IMPORT (Desai,!. ) 907 on behalf of the appellant.

The learned single judge by his order dated January 10, 1964, granted the petition of the respondent and stayed further proceedings in the suit filed by the appellant. The learned judge also vacated the ad interim injunction granted in favour of the appellant. The appellant preferred ,two appeals being Civil Appeal No. 110/64 against the order of the learned single judge granting stay of the suit of the appellant and Civil Appeal No. 111/64 against the order dated February 6, 1964, vacating the interim injunction granted in favour of the appellant. A Division Bench of the High Court disposed of both the appeals by a common judgment dated December 1, 1965, dismissing both the appeals. While dismissing the appeals the division bench held that there was a valid subsisting arbitration agreement between the parties and it was binding on both the parties.

It was also held that the claims made by the appellant in the suit arose out of the sub-contract which included arbitration agreement and, therefore, the plaintiff must be bound by the bargain undertaken by him. The contention of the appellant that even if there was a subsisting arbitration agreement, in the facts and circumstances of the case discretionary relief of granting stay of suit would cause irreparable hardship and deny justice to the appellant was negatived. Appellant then moved an application for a certificate under Article 133(l)(c) . of the Constitution. The High Court was of the opinion that the appeals did involve sub&tantial questions of law and the case was a fit one for appeal to the Supreme Court and accordingly granted a certificate under Art. 133(l)(c). Appellant accordinJ.! ). y preferred these two appeals by certificate. At the commencement of hearing of the . appeals Mr. P. K.

Chatterjee, learned counsel who appeared for the appellant stated that by passage of time the prayer for injunction restraining the respondent from recovering its claim from Bihar State Electricity Board had become infructuous and accordingly Civil Appeal No. 2408/68 which was against the order vacating ad interim injunction granted by the High Court and the dismissal of the appeal against that order wa&• not pressed. Therefore, Civil Appeal No. 2408/68 would stand dismissed as having not been pressed. · t Mr. Chatterjee in support of Civil Appeal No. 2407/68 . canvassed four contentions before us. They are : 1. There is no. concluded arbitration agreement between the parties to refer the disputes arising out of the sub-contract dated July 10, 1961, to arbitration and, therefore, the suit cannot be stayed; ~- 2. Alternatively, even if the Court comes to the conclusion that there is such a subsisting arbitration agreement between the parties, prayer for stay having been made under s.

151 of the Code of Civil Procedure and/or under s. 34 of the Arbitration Act, 1940, read with s. 151, C. P. C. , the Court should not enforce it in its discretionary jurisdiction in the facts and circumstances of the case as it would result in miscarriage of justice; 3. In view of the provisions contained in Arbitration (Protocol and Convention) Act, 1937, the Court could not invoke its inherent jurisdiction under s. 151, C. P. C. and the J special Act would not assist the respondent because the present cas1~ is not covered by the provisions of the Act; 4. This being a foreign arbitration, s. 34 of the Arbitration Act, 1940, is not attracted and the Court would have no jurisdiction to grant stay of the suit filed by the appellant. The first contention is that there is no· concluded arbitration agreement betwen the parties to refer.

the disputes arising out of the sub-contract dated July 10, 1961, to arbitration and in the absence of a mutually agreed arbitration agreement, the respondent is not entitled to a stay of the suit filed by the appellant either under s. 34 of the Arbitration Act or under s. 34 read with s. 151 of the Code of Civil Procedure. Undoubtedly, sub-contract marked Ext. A has been signed both by the Managing Director of the appellant company and by one Mr. Petrovije on behalf of the respondent company. Third paragraph of Art. 12 of sub-contract Ext. A recites. an arbitration agreement. The provision is for a reference of disputes arising out of the sub-contract to foreign arbitral tribunal, namely, the International Chamber of Commerce in Paris. Such a clause has always been interpreted to spell out an arbitration agreement. Respondent contends that admittedly the Managing Director of the appellant company has signed sub-contract Ext.

A which incorporates arbitration agreement and the appellant accepted the same and entered upon the work entrusted to it under Ext. A and, therefore, it is not now open to it to repudiate a part of the contract which provides for reference of disputes arising out of the sub-contract to arbitration of a foreign arbitral tribunal. Appellant countered by saying that the appellant accepted the principal contract but not the agreement to refer the dispute to foreign arbitral tribunal and that there are tell-tale circumstances on record which would convincingly establish that the parties were not ad idem with regard to arbitration clause in Ext. A. To recall, sub-contract Ext. A was signed by the parties in Belgrade on July 10, 1961. Managing Director of the appellant was in Belgrade on that day.

On that very day Managing Director 'Sent a letter· from Belgrade itself addressed to the respondent at ·-"- I Belgrade, reievant portion of which may be extracted : "10th July 1961 "I have signed the contract of Barauni Thermal Power Btation work with you. I have objected to the clause of Arbitration put in there in agreement which was deleted from our revised draft of agreement sent to you in advance. Arbitration clause will be acceptabl. e to us if only arbitration to be done in India, according to the rules and regulations and procedure of our country". This letter was handed in to the respondent on the same day on which Ext. A was signed and accepted by the parties and it would_ imply that it must be soon after the signing ceremony was over.

Further, the Managing Director of the appellant immediately on landing in Bombay on July 13, 1961, sent a cable to the respondent which reads as under : "Reached safely Bombay (stop) Reference to our letter of ;E 10th July 1961 regarding Arbitration clause to be deleted from the contract document". Three things emerge from a conjoint reading of the letter and the cable that before sub-contract Ext. A was signed by the parties at . Belgrade, a draft of the intended sub-contract was sent by the respondent to the appellant for its approval and the Managing Director of the appellant had raised a limited objection to the arbitration clause. On behalf of the appellant it was suggested that there . would be no objection to the arbitration clause if arbitration was to be done in India.

But as the original draft submitted on behalf of the respondent suggested arbitration by a foreign arbitral tribunal stationed in Paris, the same was objected to on behalf of the appellant and its amendment was sought. Undoubtedly, Managing Director of appellant signed Ext. A which incorporated the arbitration agreement as extracted herein-before. But the letter referred to herein was handed in presumably soon after the signing ceremony of subcontract Ext. A was over and was followed by the cable which not · <>nly referred to letter dated July 10, 1961, but also reiterated and repeated the objection to the arbitration clause. At one stage of the proceeding the respondent adopted a position that neither the letter nor the cable were received by it anci they are not genuine documents. The appellate Bench of the High Court held that the letter and the cable were not received by the respondent.

This conclusion is not only contrary to evidence on record but is reached in utter disregard of the admission of the Manager of the respondent. Hija Kostantinovic, Manager of the respondent company stationed at' Calcutta filed an affidavit in rejoinder. The admissions are spelt out in paragraphs 5 and 6 of the affidavit which are extracted hereinabove. In para 6 it is in terms admitted that the appellant purported to send a letter to the respondent _j seeking to modify and/or delete the arbitration clause contained in the contract dated July 10, 1961, and also purported to send a telegram to the respondent. He further proceeded to state that the respondent never agreed to the modification and/or deletion of the arbitration clause. This unambiguous admission unmistakably shows that the letter and the cable were received by the respondent.

Of course, again at a later stage when Panich Stojan, Project Manager of the respondent entered the witness box to give evidence in support of the applicatimi for stay he was asked at Question No. 13 whether he had any knowledge about the letter sent by the appellant on July 10, 1961, relating to the arbitration clause contained in the agreement. The answer was that the deponent . had not received any letter in his department. To question No. 16 about the cable, the answer was that the respondent had not received any cable also. In cross-examination when he was confronted with the averments iri paragraph 6 of the affidavit of Ilija Kostantinovic, a nebulous answer was given that Mr. Kostantinovic must have replied to the letter and the telegram. And he admitted that Mr. Kostantinovic was the Manager of the branch office of the respondent company at Calcutta. Now, one employee, viz.

, the Manager of the respondent company stationed at Calcutta in terms admitted the receipt of the letter and the cable while the witness who claimed to be present at the signing ceremony of the sub-contract Ext. A was emphatic that the cable and the letter were not received and gave an explanation with regard to the averments of the affidavit which only show that truth was otherwise. In the face of uncontroverted and unambigiious admission in the affidavit of the Manager of the respondent company one can without fear of contradiction assert that the letter and the cable were received by the respondent. The letter and the cable would show that the arbitration agreement to refer dispute~ to a foreign arbitral in the draft was not acceptable to the appellant though the other terms were acceptable.

The appellant repudiated the arbitration agreement soon after the agreement was signed when the Managing Director of the appellant was in Belgrade and took the follow up action by sending a cable reiterating and repeating the objection immediately after his ,return to Ind~a. Now once it is admitted and established that the letter and the cable wer~ received by the respondent, ordinarily if the contents of . the letter and cable are not acceptable to respondent, a reply to that effect is naturally expected. Contention i& that respondent accepted ' the change in arbitration clause proposed by the appellant sub silentio coupled with the subsequent conduct. It is a fact that the respondent did not write back saying that if the arbitration agreement was not t ·acceptable to the appellant the sub-contract would not _be acceptable as a whole to the respondent. On the contrary, after a specific objection only with regard to arbitration agreement in the sub-contract Ext N.

by the appellant, the respondent allowed the appellant to proceed further with the implementation and execution of the subcontract, without controverting what the appellant had stated in the letter and the cable. This would unmistakably show that the respondent accepted the alteration as suggested by the appellant in that the arbitration agreement was deemed to have been deleted from the subcontract Ext. A. Add to this the circumstance that a petty labour contractor could not have been expected to or was not likely to agree to arbitration by a foreign arbitral tribunal stati:oned in Paris because it would be beyond its reach to seek relief by arbitration in a foreign country. Incidentally it. was urged by Mr.

'Majumdar that even if the court proceeds on the assumption that the letter and the cable were received, i:t is not open to this Court to look into the contents· of the letter and the cable because the contents are not proved as the Managing Director or the appellant company who is supposed to have signed the letter and the cable has neither entered the witnes~ box nor filed his affidavit proving the contents thereof. Relianct> 1 was placed on Judah v. Isolyne Bose, ( ) • In that case a letter and two telegrams were tendered in evidence and it was observed that the contents of the letter and the telegram were not the evidence of the facts stated therein. The question i:n that case was whether the testatrix was so seriously ill as would result in impairment of her testamentary capacity. To substantiate the degree of illness, a letter and two telegrams written by a nurse were tendered in evidence.

The question was whether in the absence of any independent -evi:dence about the testamentary capacity of the testatrix the contents of the letter could be utilised to prove want of . testamentary capacity. (I) AIR 1945 P. C. 174. •. Obviously, in these circustmances the Privy Council obse! Ved that the fact that a letter and two telegrams were sent by itself would not prove the truth of the contents of the letter and, therefore, the contents of the lc~tter bearing on the question of lack of testamentary capacity would not be substantive evidence. Undoubtedly, mere proof of the handwriting of a document would not tantamount to proof of all the contents or the facts stated in the document. If the truth of the facts stated in a document is in issue mere proof of the ' handwriting and execution of the document would not furnish evidence of the truth of the facts or contents of the document.

The truth or otherwise of the facts or contents so stated would have to be proved by admissible evidence, r. e. by the evidence of those persons J who can vouch safe for the truth of the facts in issue. But in this case Bhikhubhai Gourishankar Joshi who filed an affidavit on behalf of the appellant has referred to the averments in the letter and the cable. He is' a principal officer and constituted attorney of the appellant company. Once the recerpt of the letter and the cable are admitted or proved coupled with the fact that even after the dispute arose and before the suit was filed, in the correspondence that ensued between the parties, the respondent did not make any overt or covert reference to the arbitration agreement and utter failure of the respondent to reply to the letter and the cable controverting the averments made therein would unmistakably estabHsh the truth of the averments made in the letter.

What is the effect of averments is a different question altogether but the averments contained in the letter and the cable are satisfactorily proved. It was, however, contended that once sub-contract Ext. A was admittedly signed and executed by the Managing Director of the appellant company, subsequent attempt on behalf of the appellant lo repudiate a part of the contract would be of no avail and the court cannot give effect to it except if the novatio suggested by the appellant is unreservedly accepted and agreed to by the respondent. In the facts of a given case acceptance of a suggestion may be sub silentio reinforced by the subsequent conduct. True it is that the general rule is that an offer is not accepted by mere silence on the part ofr the offerce. There may, however, be further facts which taken together with the offeree's silence constitute an acceptance.

One such case is where a part of the offer was disputed at the negotiation stage and the original offeree communicated that fact to the offerer showing that he understood the offer in a paFticular sense. This communication will probably amount to a counter offer in which case it may be that mere silence of the original offerer will co11stitute his acceptance (see Halsbury's Laws of England, 4th Edn. , R. D. & SONS v. INVEST IMPORT (Desai, !. ) 913 Vol. 9, para 251). Where there is a mistake as to terms of a document as in this case, amendment to the draft was suggested and a genuine t and binding. It would, therefore, be 'inappropriate to say that because the appellant has signed the sub-contract, every part of it is accepted by him even . though there is convincing evidence pointing ff · to the contrary. It was, however, said that a subsequent negotiation (I) [1951] 1 All E. R. 482. . A or a repudiation of part of the contract cannot in any manner affect the concluded agreement.

Reliance was placed on Davies v. Sweet( ) the pertinent observation at p. 529 being as under: "If there was originally a concluded bargain between the _>. parties, this could only be got rid of by either (a) a mutual agreement to call off the sale, or (b) an agreement for a variation of the tenns of the original contract. The mere fact that there have been negotiations which prove to b~ abortive and do· j not result in an enforceable agreement does not des. troy the· original contract : see Perry v. Su/fields Ltd. (1916) 2 Ch. 187. c~ . If on the evidence in this case it can be held that the sub-contract Ext. A was a concluded contract in respect of all clauses of it including the arbitration agreement, a subsequent repudiation of a· part of it by a party to the contract cannot affect the concluded· agreement. But as clearly pointed out hereinbefore an amenderp.

ent was suggested to th within the discretion of the court it is to be exercised according to well established judicial principles, according to reason and fairplay, and not according to him and caprice. ·'Discretion', said Lord Mansfield in R. v. Wilkes, 'when applied to a court of justice, means sound discreti:on guided by law. It must be governed by rule, not by humour; it must not be arbitrary, vague, and fanciful, but legal and regular' (see Craies on Statute Law, 6th End. , p. 273). Jn the course of this judgment we would be constrained to point out that both the learned single judge and the judges of the Division Bench completely overlooked the well established principles in granting stay of suit in a case where reliance is placed upon a subsisting arbitration agreement. Mr.

Chatterjee, learned counsel for the appellant deduced the following circumstances from the evidence on record which, when properly evaluated, would unmistakably indrcate that this is not a fit case in which the Court should decline to adjudicate upon the dispute brought before it by granting stay in favour of the respondent : (i) The entire main contract including the work of erecting the boilers entrusted io the appellant under the sub-contract Ext. A, dated July 10, 1961, was executed and carded out in India and the whole of the evidence both for and against 1 the appellant is in India; · (ii) The amount claimed in the suit is so disproportionately small in relation to the huge cost of arbitration to be held at Paris in France that forcing the appellant to incur the costs. Jp realise a small sum would be denial of justice; .

(iii) Restrictions on availability of foreign exchange is a relevant consideration, a fact of which Court can take judicial notice; (iv) The Court should not lend its assistance by granting the stay to one who insists on arbitration not as a matter of [1981] 1 S. C. R. principle but with a view to thwarting, stifling or exhausting the other side; (v) In all cases of arbitration by a foreign arbitral tribunal there is always a rider that in case of hardship or injustice Courts of the country of the party being forced to go to foreign arbitral trib11nal will protect him. We would analyse and examine each one of the circumstances lieriinabove extracted separately and evaluate their cumulative impact on exercise of the judicial discretion one way or the other. While so doing the observations of the learned single judge and learned judges of the Division Bench in granting stay of suit must receive serious consideration.

When parties by contract agree to arrange for settlement of their disputes by a judge of their choice, by procedure of arbitration voluntarily agreed upon, ordinarily the Court must hold the parties to their bargain. As a corollary, if a party to a subsisting arbitration agreement in breach or violation of the agreement to refer dispute to arbitration approaches the Court, the Court would not lend_ its assistance to such a party and by staying the suit compel the party in breach to abide by its contract. When the parties have agreed to an arbitration by a foreign arbitral tribunal the case for stay would be stronger than if there was a domestic arbitration agreement. This proceeds on the assumption that parties not only sought and ·agreed upon· the forum for resolution of dispute but also the law according to which the dispute would be resolved. However, this rs not an absolute rule. G):anting or refusing to grant stay is still a matter within the discretion of the Court.

How discretion would be exercised in a given case would depend upon various circumstances. But . to grant stay of the suit is still a matter within the discretion of 1 the Court. In Bristol Corporation v. John Aird & Co. ,( ) Moulton, L. J. observed as under : "But, my Lords, it must be remembered that these arbitration clauses must be taken to have been inserted with due regard to the existing law of the land, and the law of the land as applicable to them is, as I have said, that it does not prevent the parties coming to the Court, but only gives to_! he Crort the power to refuse its assistance in proper cases. Therefore, to say that if we refuse to stay an action we are not carrying out the bargain between the parties does not fairly describe the position. We~ are carrying ou~ the bargain between the parties, (I) [1913] A. C. 241 at 257. . 1{. D. & SONS v. INVEST IMPORT (Desai, J.

) 919 because that bargain to substitute for the Courts of the land a domestic tribunal was a bargain into which was written, by reason of the existing legislation, the condrtion that it should only be enforced if the Court thought it a proper case for its being so enforced". 1 In Owners of Cargo Ex "Athenee" v. Athenee,( ) the Court of Appeal affirmed the extracted passage from Lord Moulton's judgment. In that case ·the action was brought by the receivers of a part cargo of onions, which it was alleged were damaged in course of carriage from Alexandria to Hull, and the President of the Admirality Division dec1ined to stay the action. The Court of Appeal in the appeal at the instance of tlie defendants declined to interfere with the order refusing the stay on the ground that the balance of convenience and the substantial advantage which the plaintiffs have by suing in U. K.

(and which they lose by not being able to proceed in rem against this ship) and many other advantages' such as_ in respect of proof of loss, a matter which any commercial tribunal would wish should be decided, if possible, having regard to the evidence obtained at the time by inspection of the vessel and so on, and in these c! rcumstances the arbitration clause in the contract was not given effect to. Reverting to the circumstances relied upon by the appellant which are likely to influence the discretion of the Court, the first submission is that the whole of the principal contract including the subcontract was carried out in India and the whole of the evidence both -of the appellant and the respondent is in India and that this is a reler ' vant circumstance which must influence the judicial verdict. Appel- 1ant has itemised his different claims· in the plaint.

Broadly stated, it claims payment for extra work, difference between agreed charg~~ -and the revised charges, loss incurred on account of non-performance 'Of a part of the contract by the respondent, etc. In respect of most 'Of the claims the appellant will have to examine the men incharge · -of the work, strength of labour force supplied by it and this evidence would ce,rtainly be in India. Respondent had ·set up its' office at 'Calcutta and this office was functioning even when the suit was instituted. Looking to the various heads of claim by the appellant and the correspondence between the parties prior to the suit it is safe to conclude that the evi:dence of the respondent would also be in India. Of course, as a remote possibility some highly placed officers may have to be examined by the respondent who may be in Yugos- 1avia. Mr. Majumdar learned counsel for the· respondents, however, .!

Urged that the respondent has closed its office and all the books and 0) Llyods' List Law Reports, Easter Sittings 1922, Vol. XI, page 6. . \ •' relevant documents have been taken to Belgrade and, therefore, it is now. too late' in the day to say that the evidence of the respondent is also in India. The Court b· required to consider the situation as on the date of institution of the suit and unquestionably on the date of institution of the suit office of the respondent at 36, Ganesh Chandra Avenue, Calcutta. was functioning and within 7-8 days of the instrtution of the suit respondent appeared in the suit through Ilija Kostantinovic, Manager of the respondent stationed at Calcutta. Neither in the, main petitron for stay nor in the affidavit in rejoinder it was anywhere stated that the evidence of the respondent was not in India.

It was, however, urged that nearly a decade has rolled by and that this Court should take into consideration the change in circumstances J on account of the passage of time for which respondent is in no way responsible. Reliance was placed on Pasupuleti Venkateswarlu v. The Motor & General Traders. (1) In that case :m action was brought by the landlord for recovering possession of certain premises from the tenant. When the matter was pending in the High Court, evidence was tendered to point out that since the institution of the action in the tri:al court the landlord has recovered another accommodation and that if the subsequent development is taken into consideration landlord has no present need of the accommodation in possession of the tenant. The High Court admitted evidence on this point arnd took into consideration the fact that the landlord has since the institution of the suit obtained possession of another accommodation and on this finding non-suited the appellant.

An objection was taken on behalf of the landlord before this Court that the High Court was in error in taking i:nto consideration subsequent events and this contention was negatived. In the very nature of action for eviction on the ground of personal requirement, the Court has not only to be satisfied that the requirement was present at the date of institution of the action but continued to exist at the time of decree and has to mould the decree accordingly. Even if subsequent events as have a bearing on the contention canvassed before the Court have to be taken into consideration, there is no material on record to show that the respondent has closed its office at Calcutta and that the documents and books of accounts which may have to be tendered in evidence have been taken to Yugoslavia. Save this, Mr. Majumdar could not controvert the fact that the entire evidence both of the appellant and the respondent which may be relevant for resolution of the dispute involved in .

the suit is in this country, India. In Athenee (supra) case the fact that the evidence was in U. K. was considered as very relevant considera~ion for refusal to stay the suit. In Michael (1) [1975] 3 S. CR. 1958. Golodetz & Ors~ (Supra) the fact that all the evidence of the par. ties was in India was acc_epted by this Court as a relevant consideration for refusing to stay the suit. The next circumstance relied upon is that the cost of arbitration to be held at Paris would be so disproportionately high to the amount claimed in the suit that forcing the appellant to go to arbitration would be denial of justice. This is self-evident. The claim in the suit is Rs. 4,25,343. Now, just contemplate taking witnesses aad books· of accounts to Paris for leading evidence before the International Chamber of Commerce. The cost would certainly be disproportronately high. One need not go into the mathematical calcula- 1 tions_for tbis obvious and self-evident proposition. .

The next circumstances relied upon is restriction on availability of foreign exchange as a relevant consideration. If wi1nesses ·are required to be taken to Paris, if lawyers are to be engaged in Paris and ·if documents• are to be sent to Paris, all this would require foreign exchange. Foreign exchange is a scarce and controlled commodity. It can be obtained for prescrrbed purpose. Both in the case of Michael Golode,tz (Supra) and in V/O Tractoroexport, Moscow v. M/s. Tarapore & Company and Anr. (1), this Court held that restriction on availability of foreign exchange is a relevant consideration which should enter into judicral verdict for exercising the discretion one way or the other.

The High1Court in this connection observed that if the Managing Director of the appellant company could obtain r foreign exchange for going to Belgrade to sign the contract, why should it be assumed that he would not get foreign exchange this time too to plead his cause - a cause which owes its existence to the grant of foreign exchange in 1961 ? This casual approach is none-too-convincing. Foreign exchange for a visit for few days cannot be equated with heavy requirement of foreign exchange for engaging counsel, taking witnesses and transporting documents from India to Parrs so as to substantiate a claim of Rs. 4,25,343. And the judicial approach is not whether the appellant would get necessary foreign exchange but the approach is should this valuable national asset of foreign exchange be frittered away for resolving a petty matter which can be conveniently resolved even in this country. The next circumstance canvassed is thait the Cour.

t should not 1 lend its assistance by granting the stay of . the sutt to one who insis,ts on arbitxation not as a matter of principle but with a view to thwarting, stifling or exhausting the other side. Respondent insists that (l) (1970] 3 S. C. R. 53. 17-645 S. C. India/SO by staying the suit the appellant should be forced to go to arbitration if i,t desires to vindicate its claim. Is 1this approach clictated by some principle or was the respondent aware of the fact that looking to the quanrum of cl -..

To sum up, the entire evidence both of the apppellant and the respondent is in this country; the contract as a whole was executed and carried out in this country; the claim as a whole arose in this country; the appellant is a company incorporated in this country and the respondent is having its office in this country; and that the respondent is not motivated by any principle to have the decision of the foreign arbitral tribunal at Paris but the principal object of the respondent is merely to make it more difficult, if not impossible, for the appellant to assert the claim. Add to this two other vital considerations, viz. , that the· cost of arbitration at Paris will be so disproportionately high to the claim involved in adjudication that one would never think of incurring such a huge cost to realise such a small sum claimed, and the restriction on the availability of foreign exchange, another vital relevant consideration.

The sum total of all these well established circumstances clearly indicate that this was a suit in which when discretion is exercised on well settled judicial considerations no _court would grant stay and the stay has to be refused. And now to the approach of the appellate Bench of the High Court relevant to the point. Says the Court : "Here is a contract solemnly entered into between the appellant, an Indian company, and the respondent, a Yugoslav company, in aid of another contract entered into between the latter and the State of Bihar through its· Electricity Board for erection of a thermal power station at Barauni. What a valuable possession for the nation such thermal power station means is plain to be seen. We do not, Yugoslavs do, know the knowhow, of erecting a thermal power station. Hence they are here on the role of collaborators to help us make such an invaluable acquisition.

And to get it built the authorities spare from their none too adequate resources the requisite foreign exchange for the appellant's managing director, Lalbhai, in order to enable him to proceed to Belgrade with a view to signing the contract, which he does, his signature being "only one centimetre away" from the contract's arbitration clause". Does it call for any· comment or analysis that the division bench completely misdirected itself while examining the question of granting discretionary relief one way or the other ? Does it disclose exercise of discretion on sound judicial principles or the Court is carried away by the considerations wholly extraneous and irrelevant? Yugoslavs did not undertake constructron of thermal power station actuated by any altruistic motive but guided by sound business considerations. One who comes here to earn by going into business need not be put A on a pedestal.

The High Court overlooked the global competition for obtaining international contracts and it is not a philanthropic motive. The extracted passage clearly indicates an approach not dictated by sound judicial· principles but considerations wholly extraneous to the issue under discussion. It is in these circumstances J that this Court is constrained to interfere with the discretionary relief granted in this case. The next contention is that i:n view of the provisions contained in Arbitration (Protocol and Convention) Act, 1937, ('1937 Act' for short), the Court could not invoke its inherent jurJsdiction under '7' s. 151, C. P. C. , and the special Act would not assist the respondent because the present cas~ is· not covered by the provisi:ons of the Act. Mr.

Majumdar urged that the 1937 Act was enacted to give effect to the protocol on arbitration clause set forth in the First Schedule and to the convention on the execution of foreign arbitral awards set forth in the Second Schedule as India was a signatory to the protocol. Mr. Majumdar urged that even if the applicati:on for stay is not entertainable under s. 34 of the Arbitration Act on the ground· that this is a foreign arbitration to which Arbitration Act, 1g4o, will not apply, nor could he invoke inherent juri:sdiction of the Coart under s. 151 of the Code of Civil Procedure, yet the application is maintainable under s. 3 of the 1937 Act.. Section reads as under: ~ "3.

Notwithstanding anything contained in lhe Arbitration Act X of 1940, or rn the Code of Civil Procedure, 1908, if any party to a submission made in pursuance of an agreement to ~ which the Protocol set forth in the First Schedule as modified by the reservation subject to which it was signed by India applies, or any person claiming through or under him, commences any legal proceeding i:n any court against any other party to the submission or any person claiming through or under him iri respect of any matter agreed to be referred, any party to such legal proceeding may, at any time after appearance and before filing a written statement or taking any other steps in the proceedings, + apply to the Court to stay the proceedings; and the Court unless satisfied that the agreement or arbitratron has become inoperative or cannot proceed, or that there is not in fact any dispute between the parties with regard to the matter agreed to be referred, shall make an order staying the proceedings".

India and Yugoslavia have ratified the protocol. The question, however, is whether s. 3 is attracted in this case. The important expression in s. 3 to be noted is : "if any party to a submission made in pursuance of an arbitration agreement to which the Protocol set forth in the First Schedule as modified by the reservation subject to whrch it was signed by India applies". This expression postulates an agreement to which the protocol set forth in the First Schedule as modified by the reservation subject to which it was signed by India applies and a ~ubmission made in pursuance of such agreement. Now, both India and Yugoslavia have ratified the protocol modified by the reservation subject to which it was signed by India. It may be l_ assumed that arbitration agreement between the parties to this appeal is governed by the 1937 Act.

Section 3 is, however, not attracted merely where an agreement as set forth in the First Schedule is subsisting between the partie8 but the next step ought to have been taken before proceedings can be stayed in exercise of the power conferred by s. 3, viz. , submission made in pursuance of such an agreement. A reference to s. 3 of the Foreign Awards (Recognition & Enforcement) Act, 1961, ('1961 Act' for short), prior to its amendment by the Amending Act of 1973 and a decision of this Court interpreting the expression : "if any party to a submission made in pursuance of an agreement to whrch" would clearly establish that mere existence of an agreement as envisaged by the First Schedule would not attract s. 3 of the 1937 Act but it would only be attracted '-':here there is a submission pursuant to that agreement. Section 3 of the 1961 Act prior to its amendment in 1973 read as under: "3.

Stay of pro~eedings in respect of matter to be referred to arbitration : Notwithstanding anything contamed in the Arbitration Act X of 1940 or in the Code of Civil Procedure, 1908, if any party to a submission made in pursuance of an agreement to which the Convention set forth in the Schedule applres, or any person claiming through or under him, commences any legal proceedings in any Court against any other party to the submission or any person claiming through oninder him in respect of any matter agreed to be referred, any party to such legal proceedings may at any time after appearance or before filing a written statement or taking any other steps in the -+ proceedings, apply to the Court to stay the proceedings and the Court, unless satisfied that the agreement is null and void inoperative or incapable of being performed or that there is not in fact any dispute between the parties with regards to the matter agreed to be referred, shall make an order staying the proceedings".

This section came in for interpretation in V / 0 Tractoro-Export, Moscow. Interpreting this section this Court held as under : "But in the present case a suit is being tried in the courts of this country which, for the reasons already stated, cannot be stayed under section 3 of the Act in the absence of an actual submission of the disputes to the arbitral tribunal at Moscow prior to the institution of the suit". Section 3 of 1937 Act is in pari materia with s. 3 of 1961 Act. It, therefore, becomes crystal clear that s. 3 of the 1937 Act would only be attracted if there is a submission pursuant to an agreement to that effect. In fact, the decision in VI0 Tractoro-export, Moscow, (Supra) made it necessary for the Parliament to amend s. 3 of the 1961 Act. In this case we are concerned with s. 3 of the 1937 Act which is not amended. It must, therefore, receive the same interpretation which an identical provision received at the hands of this Court.

Viewed from that angle, in this case while there is an agreement as contemplated by First Schedule to 1937 Act, there is no submission made in pursuance of such agreement and, therefore, the apjplication of the respondent could not have been entertained under s. 3 of the 1937 Act. As far as the 1961 Act is concerned, Mr. Majumdar conceded that Yugoslavia has not ratified the protocol pursuant to which 1961 Act was enacted and, therefore, the respondent cannot maintain its application under s. 3 of the 1961 Act. The last submission is that this being an arbitration agreement to refer a dispute to a foreign arbitral tribunal, s. 34 of the Arbitration Act would not be applicable and hence the application of the respondent for stay of the suit is not maintainable. It is not necessary to examine this contention on its merits because we have assumed for the purpose of this appeal that s.

34 of the 1940 Act would be attracted even where the agreement is to refer a dispute to a foreign arbitral tribunal. Having examined the matter from all angles it is clear that both the learned single judge and the division bench of the High Court were in error in granting stay of the suit in this matter and, therefore, Civil Appeal No. 2407 of 1968 is allowed and the stay of suit granted by the ·learned single judge and affirmed by the division bench of the Calcutta High Court is vacated. The suit should accordingly proceed further from the stage where it was stayed. As the suit is a very old one, we hope the trial court would give priority to it and dispose it of as expeditiously as possible. The appeal is allowed with costs throughout. N. V. K. Appeal allowed.