1953 (2) TMI 49 - SC - Indian Laws

Summary

Issues Involved:
1. Validity of the arbitration agreement.
2. Scope of the arbitration clause.
3. Jurisdiction of the court to stay proceedings under Section 34 of the Indian Arbitration Act.
4. Breach of contract and rescission of the agreement.
5. Valuation of the undertaking and payment of compensation.

Issue-Wise Detailed Analysis:

1. Validity of the Arbitration Agreement:
The State of Bihar filed an application under Section 34 of the Indian Arbitration Act to stay proceedings in a suit initiated by the Gaya Electric Supply Co. Ltd. The company contended that the arbitration clause was no longer in existence, while the State argued that it was still subsisting, valid, and binding on the parties. The court determined that the arbitration clause was indeed part of the agreement and was valid at the time of the dispute.

2. Scope of the Arbitration Clause:
The arbitration clause specified that any difference or dispute over the valuation of the undertaking, including claims for additional compensation, would be referred to a sole arbitrator. The court noted that the clause was narrowly worded, conferring jurisdiction only on disputes regarding the valuation of the undertaking. It did not cover broader disputes such as the breach of contract or its rescission. The court emphasized that questions relating to the breach of contract or its rescission were outside the reach of this clause.

3. Jurisdiction of the Court to Stay Proceedings Under Section 34 of the Indian Arbitration Act:
Section 34 of the Indian Arbitration Act allows a party to apply for a stay of legal proceedings if the matter is agreed to be referred to arbitration. The court held that the legal proceeding sought to be stayed must be in respect of a matter within the ambit of the arbitration agreement. The court concluded that the dispute in the suit did not fall within the scope of the arbitration clause, as it was not a matter agreed to be referred to arbitration. Therefore, the court had jurisdiction to decide the plaintiff's suit and the stay application was rightly dismissed by the Subordinate Judge.

4. Breach of Contract and Rescission of the Agreement:
The company alleged that the State Government committed a breach of the agreement by failing to make the valuation or pay the balance of the compensation money within the stipulated time. As a result, the company rescinded the agreement and forfeited the advance payment of five lakhs. The court noted that these issues were central to the dispute and were not covered by the arbitration clause, which was limited to valuation disputes. The court emphasized that the validity of the plaintiff's contention regarding the breach of contract could not be decided under Section 34 but was a matter for the proper tribunal.

5. Valuation of the Undertaking and Payment of Compensation:
The agreement stipulated that the State Government would make a valuation of the undertaking within three months and pay any balance due to the company. The company provided a valuation of Rs. 22,06,072, which the Chief Electrical Engineer deemed excessive, estimating the value at approximately five lakhs. The court noted that the arbitration clause covered disputes over the valuation but did not extend to the broader issues of breach of contract or rescission. The court concluded that the dispute in the suit was not within the scope of the arbitration clause, and the Subordinate Judge's decision to dismiss the stay application was correct.

Conclusion:
The Supreme Court allowed the appeal, holding that the plaintiff's claim did not fall within the scope of the arbitration clause. The decision of the Subordinate Judge to dismiss the stay application under Section 34 of the Indian Arbitration Act was upheld, and the High Court's reversal of this decision was found to be in error. The appeal was allowed with costs.