1985 (2) TMI 301 - HC - Indian Laws

Summary

Issues Involved:
1. Applicability of Section 34 of the Arbitration Act.
2. Scope of the arbitration clause in the agreement.
3. Readiness and willingness of the defendants to arbitrate.
4. Allegations of fraud and the necessity for a public trial.
5. Judicial discretion exercised by the trial court.

Detailed Analysis:

1. Applicability of Section 34 of the Arbitration Act:
The defendants filed an application under Section 34 of the Arbitration Act to stay the suit and refer the matter to arbitration as per the arbitration clause in the agreement. The trial court rejected this application on grounds that the reliefs sought in the suit were outside the purview of the arbitration clause, there was no existing dispute, and the defendants had made serious allegations against the plaintiff.

2. Scope of the Arbitration Clause:
The arbitration clause (Clause 25) in the agreement provided for the settlement of all disputes arising out of the contract by referring them to the sole arbitration of the Executive Vice-Chairman of the Corporation or an appointed arbitrator. The main relief sought by the plaintiff was a decree for unpaid bills, which was covered by the arbitration clause. The dispute regarding payment certificates was deemed an insignificant part of the main dispute and thus did not justify refusing to stay the proceedings.

3. Readiness and Willingness of the Defendants to Arbitrate:
The defendants demonstrated their readiness and willingness to arbitrate both before and after the commencement of the suit. Correspondence between the parties showed that the defendants were prepared to make available all relevant documents and evidence for arbitration. The court concluded that the defendants met the requirement of Section 34 of the Arbitration Act, which mandates that the petitioner must be ready and willing to arbitrate at the commencement of the proceedings and continue to be so.

4. Allegations of Fraud and Necessity for a Public Trial:
The trial court noted serious allegations of fraud made by the defendants against the plaintiff, suggesting that the matter should be tried in open court. However, the appellate court found that the allegations of fraud were not central to the dispute, which primarily concerned the completion of work according to the agreement. The court emphasized that mere allegations of fraud, unconnected with the real issue, do not bar arbitration. The plaintiff had initially agreed to arbitration and did not insist on a public trial until the suit was filed.

5. Judicial Discretion Exercised by the Trial Court:
The appellate court found that the trial court failed to exercise judicial discretion appropriately by overlooking relevant facts. The trial court incorrectly inferred that the defendants were unwilling to arbitrate and did not consider whether the arbitrator would need to address the allegations of fraud to resolve the dispute. The appellate court concluded that the trial court's refusal to stay the proceedings under Section 34 of the Arbitration Act was arbitrary and unsustainable.

Conclusion:
The appellate court allowed the appeal, set aside the trial court's order, and stayed all proceedings in the suit, directing that the matter be referred to arbitration as per the agreement. No costs were ordered, and no formal decree was necessary. The order was to be communicated to the lower court without delay.