1966 (4) TMI 71 - SC - Indian Laws

Summary

Issues Involved:
1. Applicability of Section 34 of the Indian Arbitration Act, 1940.
2. Nature of arbitration under Clause 28 of the agreement.
3. Consistency of the Co-operative Societies Act and Rules with the Indian Arbitration Act.
4. Fairness and impartiality of the arbitrator.
5. Discretion of the court in granting or refusing a stay of proceedings.

Detailed Analysis:

1. Applicability of Section 34 of the Indian Arbitration Act, 1940
The core issue was whether the court should stay the proceedings under Section 34 of the Indian Arbitration Act, 1940. Section 34 allows a party to an arbitration agreement to apply for a stay of legal proceedings if the matter is agreed to be referred to arbitration. The court must be satisfied that there is no sufficient reason why the matter should not be referred to arbitration and that the applicant is ready and willing to do all things necessary for the proper conduct of the arbitration.

2. Nature of Arbitration under Clause 28 of the Agreement
Clause 28 of the agreement between the parties stipulated that any dispute arising from the agreement should be decided by arbitration as provided under the Co-operative Societies Act, 1912. The court had to determine whether this constituted a statutory arbitration under Section 46 of the Indian Arbitration Act or an arbitration agreement under Section 47. The court concluded that the parties had merely incorporated the statutory provisions by reference and thus, it was an arbitration agreement under Section 47, not a statutory arbitration.

3. Consistency of the Co-operative Societies Act and Rules with the Indian Arbitration Act
The court examined whether the arbitration rules under the Co-operative Societies Act were consistent with the Indian Arbitration Act. Rules 115, 116, and 117 of the Co-operative Societies Rules were considered. The High Court observed that determining which rules were consistent with the Indian Arbitration Act would be a difficult task for the arbitrator, making it a fit case for the court to exercise its discretion under Section 34 of the Indian Arbitration Act to not stay the proceedings.

4. Fairness and Impartiality of the Arbitrator
A significant concern was whether the Registrar of Co-operative Societies, who was ex-officio President of the Society and had approved the termination of the agreement, could act fairly as an arbitrator. The court found substantial validity in the argument that there was a reasonable apprehension of bias. The legal principle established is that an order of stay under Section 34 should not be granted if there is good ground to apprehend that the arbitrator will not act fairly or it is improper for him to arbitrate.

5. Discretion of the Court in Granting or Refusing a Stay of Proceedings
The court emphasized that the discretion under Section 34 is subject to the court's judgment on fairness and propriety. The court must consider whether it is just to enforce the arbitration agreement given the surrounding circumstances. The High Court's exercise of discretion in refusing the stay was upheld, noting that appellate courts should be slow to interfere unless the trial court acted unreasonably or ignored relevant facts.

Conclusion:
The Supreme Court upheld the High Court's decision, affirming that the lower appellate court had properly exercised its discretion under Section 34 of the Indian Arbitration Act in not staying the proceedings. The court highlighted the importance of fairness and the potential bias of the arbitrator, concluding that the appellant had not made a case for interference. The appeal was dismissed with costs.