1977 (8) TMI 173 - HC - Indian Laws

Summary

Issues Involved:
1. Validity and enforceability of the agreement dated 4th December 1970.
2. Allegations of fraud and misrepresentation.
3. Applicability of the arbitration clause.
4. Discretion of the court in granting a stay of the suit under Section 34 of the Arbitration Act, 1940.
5. The involvement of a party not bound by the arbitration agreement.

Issue-wise Detailed Analysis:

1. Validity and Enforceability of the Agreement:
The plaintiff, Jardine Handerson Ltd., alleged that the agreement dated 4th December 1970 was brought about by fraudulent misrepresentations and collusion among the defendants. The plaintiff claimed that the agreement was void or voidable at their option due to the fraudulent inducement and misrepresentation by the defendants. The plaintiff sought rescission of the agreement and a declaration that it was void or voidable.

2. Allegations of Fraud and Misrepresentation:
The plaintiff alleged that the defendants, particularly Mukul Chandra Chakraborty, fraudulently induced the company to enter into the agreement by misrepresenting the need for an independent agent. The agreement was purportedly a scheme to defraud the plaintiff and wrongfully obtain large sums of money as commission. The plaintiff further alleged that the partnership firm, General Enterprises, was not genuine and that the services were rendered by Mukul Chandra Chakraborty himself, who was a whole-time employee of the plaintiff.

3. Applicability of the Arbitration Clause:
The defendants sought a stay of the suit under Section 34 of the Arbitration Act, 1940, arguing that the dispute was arbitrable under the arbitration clause in the agreement. The court, however, noted that the allegations in the plaint questioned the very formation and existence of the contract, making the dispute non-arbitrable. The court referenced several legal principles and precedents, including the observations of Lord Denning and Diplock, L.J., to conclude that allegations making a contract void ab initio are not subject to arbitration.

4. Discretion of the Court in Granting a Stay:
The court exercised its discretion against staying the suit. It considered the nature of the allegations, which involved serious charges of fraud that required a public trial. The court emphasized that the presence of fraud allegations and the need for a public forum to address such claims were significant factors against granting a stay.

5. Involvement of a Party Not Bound by the Arbitration Agreement:
The court noted that Mukul Chandra Chakraborty, a central figure in the allegations, was not a party to the arbitration agreement. As such, he could not be compelled to participate in arbitration proceedings. The court held that proceeding without him would be improper, akin to staging "Hamlet without the Prince of Denmark."

Conclusion:
The court refused the application for stay, emphasizing that the nature of the allegations made the contract non-existent and non-arbitrable. The court further held that it would not be appropriate to try the validity of the contract in an application under Section 34 of the Arbitration Act. The involvement of a party not bound by the arbitration agreement and the serious nature of the fraud allegations were significant factors in the court's decision to dismiss the application for stay. The costs of the application were to be costs in the suit.