1963 (2) TMI 62 - HC - Indian Laws

Summary

Issues Involved:
1. Stay of suit under Section 34 of the Indian Arbitration Act.
2. Validity and subsistence of the arbitration agreement.
3. Allegations of fraud, collusion, and conspiracy.
4. Whether the plaint discloses a cause of action.
5. Applicability of Sections 91 and 92 of the Evidence Act.
6. Appropriation and reprobation of contract terms.

Detailed Analysis:

1. Stay of Suit under Section 34 of the Indian Arbitration Act:
The appeal is against an order staying the suit filed by the respondent-appellant under Section 34 of the Indian Arbitration Act. The Court emphasized that the learned Judge provided no reasons for the stay order, which is essential for exercising judicial discretion. The stay of a suit is an adjudication of rights, and without knowing the precise grounds, it is difficult for an appellate court to decide the correctness of the order.

2. Validity and Subsistence of the Arbitration Agreement:
The Court noted that for a stay under Section 34, there must be a valid and subsisting arbitration agreement, and the subject matter of the legal proceedings must fall within its scope. The application for stay should be made at the earliest stage, and the Court must be satisfied that there is no sufficient reason to not refer the matter to arbitration.

3. Allegations of Fraud, Collusion, and Conspiracy:
The buyer alleged that the seller, in collusion with the broker, fraudulently altered the payment terms in the contract notes. The Court held that the main dispute involves determining whether there was fraud, collusion, and conspiracy. The buyer's allegations are serious and reflect on the seller's business integrity, which justifies the matter being decided in open court rather than by arbitrators.

4. Whether the Plaint Discloses a Cause of Action:
The Court referenced the principles laid down in Monro v. Bognor Urban Council and Johurmull Parasram v. Louis Dreyfus and Company Limited. It emphasized that at this stage, it is not open to decide whether the plaint discloses a cause of action. The suit as framed must be considered, and if it is independent of the contract, the Court has no power to stay it.

5. Applicability of Sections 91 and 92 of the Evidence Act:
The respondent cannot rely on all the terms of the written contract (bought note) while contesting the payment clause due to alleged fraud. Sections 91 and 92 of the Evidence Act prevent altering the terms of a written contract unless specific provisos apply, such as fraud or mistake. The respondent does not seek to invalidate or rectify the bought note, making these provisos inapplicable.

6. Appropriation and Reprobation of Contract Terms:
The respondent cannot approbate (accept) some terms of the contract and reprobate (reject) others. The Court highlighted that in law, the terms of the contract are as embodied in the bought note, including the clause for cash payment. Thus, there is no scope for a dispute regarding payment by cheque under the arbitration clause.

Conclusion:
The Court concluded that the stay of the suit under Section 34 should not have been granted. The allegations of fraud, collusion, and conspiracy are serious and warrant a public trial. The appeal was allowed, and the order dated 29th May 1962 was set aside, with costs awarded to the appellant. The additional observations by S. Datta, J. emphasized the legal principles and the inapplicability of Sections 91 and 92 of the Evidence Act in arbitration proceedings, reinforcing the decision to not stay the suit.