1963 (3) TMI 50 - SC - Companies Law

Whether the terms of the arbitration agreement include a dispute relating to a refusal to meet the obligations arising under the contract even though the refusal was not founded on any right arising under the terms of the contract? Held that - The Union is not seeking to go to arbitration on a dispute between the parties about a breach committed by one side or the other or whether circumstances have arisen which have discharged one or both parties from further performance. It is a case in which in substance there is no dispute between the parties under , in connection with , or even with regard to the contract. The plea raised by the Union for stay of the suit was frivolous. It is some- what surprising that the plea should have been raised and persisted in, and even after going to arbitration in the other case have been brought up to this Court involving large costs to the public exchequer. Appeal dismissed.

Summary

Issues Involved:
1. Enforceability of arbitration agreement under Section 34 of the Indian Arbitration Act.
2. Scope of the arbitration clause in the contract.
3. Existence of a dispute under the contract.

Detailed Analysis:

1. Enforceability of Arbitration Agreement under Section 34 of the Indian Arbitration Act:

The Union of India sought a stay of the suit under Section 34 of the Indian Arbitration Act, alleging that there was an arbitration agreement that could be invoked. The Company resisted, contending that no dispute concerning the contract was covered by a valid arbitration clause. The subordinate judge held that for Section 34 to be invoked, the suit must raise a dispute within the scope of the arbitration agreement. Since the Union did not dispute its liability to pay the amount claimed by the Company under the contract, and the only dispute was regarding another contract, the suit could not be stayed. The High Court of Punjab dismissed the Union's appeal in limine. The Supreme Court upheld this decision, stating that the evidence showed no dispute under the contract on which the suit was filed, and the Union's refusal to pay was based on a claim under a different contract.

2. Scope of the Arbitration Clause in the Contract:

The arbitration clause in question was broad, covering disputes "arising under these conditions or any special conditions of contract or in connection with this contract." However, the Supreme Court emphasized that for an order for stay under Section 34, certain conditions must be met: (i) a subsisting and binding arbitration agreement, (ii) the subject matter of the dispute must be within the scope of the arbitration agreement, and (iii) the petition must be made at the earliest stage of the proceeding. The Court found that the Union's dispute was not under the contract with the arbitration clause but related to another contract. Therefore, the arbitration clause did not apply.

3. Existence of a Dispute under the Contract:

The Supreme Court noted that the Union had no defense to the action filed by the Company and did not contend that the amount was not due under the contract. The Union's refusal to pay was because it wanted to appropriate the amount towards another claim under a different contract. The Court held that mere refusal to pay does not constitute a dispute "under or in connection with" the contract. The Court distinguished the present case from other cases cited by the Union, such as Uttam Chand Saligram v. Jewa Mamooji and Heyman v. Darwins Ltd., stating that those cases involved disputes directly related to the contract in question. In this case, there was no genuine dispute under the contract, and the Union's plea for a stay was deemed frivolous.

Conclusion:

The appeal by the Union was dismissed with costs, as the Supreme Court found no merit in the Union's contention that the arbitration agreement covered the dispute. The Court emphasized that for an arbitration clause to be enforced, there must be a genuine dispute under the contract, which was not the case here. The Union's attempt to stay the suit was seen as an unnecessary and costly exercise.