1920 (3) TMI 2 - HC - Indian Laws

Summary

Issues Involved
1. Propriety of the order of dismissal of the application for stay of a suit under Section 19 of the Indian Arbitration Act.
2. Validity and effect of the arbitration proceedings and subsequent award.
3. Judicial discretion in granting a stay of the suit.
4. Revival and continuation of arbitration proceedings.

Detailed Analysis

1. Propriety of the Order of Dismissal of the Application for Stay of a Suit under Section 19 of the Indian Arbitration Act
The appeal challenges the dismissal of an application for stay of a suit under Section 19 of the Indian Arbitration Act. The appellant sought to stay the suit, arguing that the dispute should be resolved through arbitration as per the contract. The court analyzed whether the order of dismissal was appropriately made, considering the material facts and the legal framework provided by Section 19 of the Indian Arbitration Act.

2. Validity and Effect of the Arbitration Proceedings and Subsequent Award
The contract between the parties contained an arbitration clause, which led to the seller referring the dispute to arbitration. The arbitration proceedings were initiated, and an award was made in favor of the seller. However, the buyer filed a suit and subsequently applied to set aside the award, arguing that the arbitrators were functus officio due to the institution of the suit. The court held that while the institution of the suit rendered the arbitrators functus officio, it did not retrospectively affect the validity of the arbitration proceedings conducted before the suit was filed. The court emphasized that the arbitration proceedings were properly instituted and carried on until the suit was filed.

3. Judicial Discretion in Granting a Stay of the Suit
The court examined whether the discretionary power under Section 19 should be exercised in favor of the appellant. It was noted that the burden of showing cause why the matter should not be referred to arbitration lies on the respondent. The court highlighted that the prima facie duty of the courts is to act upon agreements to refer disputes to arbitration, as such agreements are considered binding. The court found that the respondent failed to provide substantial reasons why the arbitration agreement should not be acted upon. The court also addressed the timing of the application for stay, acknowledging the appellant's explanation for the delay and the conduct of the respondent in changing his stance after participating in the arbitration proceedings.

4. Revival and Continuation of Arbitration Proceedings
The court considered whether staying the suit would remove the bar to the continuation of the arbitration proceedings, allowing them to terminate in a valid award. The court referred to Rule VIII of the Rules of the Tribunal of Arbitration, which permits the substitution and appointment of new arbitrators if the original arbitrators become incapable of acting. The court held that the arbitrators became incapable of acting when the suit was instituted, but if the suit is stayed, it would be competent to substitute new arbitrators and continue the arbitration. This approach addresses the respondent's concern about the fairness of the arbitration process and ensures that the arbitration proceedings can be revived and carried on to a conclusion before a reconstituted tribunal.

Conclusion
The appeal was allowed, and the order of the lower court was set aside. The suit was stayed, and the parties were directed to proceed with the arbitration in the Chamber of Commerce with a reconstituted tribunal under Rule VIII. The court emphasized the importance of honoring arbitration agreements and the judicial discretion involved in granting a stay of the suit, ultimately finding that the respondent failed to establish grounds for allowing the suit to proceed.