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PETITIONER: FOOD CORPORATION OF INDIA

       Vs.

RESPONDENT: M/s.  THAKUR SHIPPING CO.  LTD. & ORS.

DATE OF JUDGMENT19/12/1974

BENCH: GUPTA, A.C. BENCH: GUPTA, A.C. KRISHNAIYER, V.R. GOSWAMI, P.K.

CITATION:  1975 AIR  469            1975 SCR  (3) 146  1975 SCC  (4) 815

ACT: Arbitration  Act (10 of 1940), s. 34-’Ready  and willing  at the  time  when  the proceedings were commenced  to  do  all things necessary to the proper conduct of arbitration’-Scope of.

HEADNOTE: The  appellant  chartered  two  ships  belonging  to  the  2 respondents  for carrying rice from Thailand to India.   The Charter-party provided inter alia that any dispute should be referred to 2 arbitrators one to be nominated by the  owners and the other by the Charterers.  The appellant made  claims against  one respondent for damages for short delivery,  and against the other for damages for short delivery and  damage in  respect  of  the consignment of  rice.   The  appellant, thereafter. suggested to one of the respondents to agree  to arbitration  ’by  a  single arbitrator,  but  there  was  no response from that respondent.  The appellant also wrote  to the agents of the other respondent urging them to take steps for  referring  the  dispute, but  the  appellant  only  got evasive replies. The appellant, a few days before the claims would be  barred by  time. filed suits against each of’ the  respondents  for recovery of the amounts claimed by it. The respondents applied for stay of trial of the suits under s.  34  of  the  Arbitration Act,  1940.   The  trial  court rejected  the applications, but the High Court  allowed  the prayer for stay on the ground that the decision of the trill court was perverse. Allowing the appeals to this Court, HELD):    (1) Under s. 34, one of the conditions that    the applicant for stay should satisfy the court is that not only he is but also was, at the commencement of the  proceedings, ready and willing to do every thing necessary for the proper conduct   of   the  arbitration.   Where  a  party   to   an arbitration,  agreement chooses to maintain silence  in  the face  of repeated requests by the other party to take  steps for  arbitration,  the  case is not one  of  mere  inaction. Failing  to act %,hen a party is called upon to do so  is  a positive   gesture  signifying  unwillingness  or  want   of readiness  to  go  to  arbitration  especially  when   legal

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proceedings in Court were about to be barred by time. [150F- G; 151E-F; 152C] In  the  present case. one of the respondents  sent  evasive replies  to the appellant in reply to the appellants  letter urging  them  to  take steps for referring  the  dispute  to arbitration. As regards the other respondent. the appellant’s  suggestion of a sole arbitrator was contrary to the arbitration clause of the charter-party, but the appellant’s deviation was  not a  valid  excuse for that respondent to  remain  silent  and inactive.  If the respondent was ready and willing to go  to arbitration.  the respondent would have replied that it  was not  willing to any departure from the  arbitration  clause, but  it  did  not send any replies to the  appellant  or  do anything  for  reference  of  the  dispute  to   arbitration according to the arbitration clause. [152A-C] The  trial court found as a fact that the  respondents  were not ready and willing to go to arbitration at the time  when the suit was instituted.  Silence and inaction on their part may-  in the circumstances, very well justify the  inference that  they were not ready and willing to go to  arbitration. The  conclusion was not arbitrary or Perverse and  the  High Court was wrong in so characterizing it. [151G; 152C] Anderson  Wright Ltd. v. Moran and Company [1955] 1 SCR  862 followed.      147 Subbal Chandra Bhur v. Md. Ibrahim & Anr. AIR 1943 Cal.  481 referred to.      (2) It is true that a court should not allow a party to an arbitrationagreement to proceed with the suit in  breach of the solemn obligation to seekresort  to  the  tribunal selected by him; but this is subject to the terms of s.  34, one  of which is that the other party to the agreement  must remain ’ready and willing to do all things necessary for the proper conduct of the arbitration.’ [152E-F] Michael  Coloderz & Ors. v. Serajuddin and Company [1964]  1 SCR 19 referred to.

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal No.  1518  and 1519 of 1974. Appeal by special leave from the judgment & order dated  the 8th August 1973 of the Madras High Court in A.A.D. Nos.  389 and 401 of 1971. M.Krishna Rao and B. Parthasarthy, for the appellant  (in C.A. No. 1518/74.) Niren  De, Attorney General for India and  B.  Parthasarthy, for the appellant (in C.A. No. 1519/74.) N.M.  Ghatate and S. Balakrishnan, for respondent  No.  1 (in C.A. No. 1518/74). S.T.  Desai,  N.  M. Ghatate  and  S.  Balakrishnan,  for respondents (in C.A. No. 1519/74.) The Judgment of the Court was delivered by GUPTA,  J.  In  these  two  appeals  by  special  leave  the appellant,   Food  Corporation  of  India,  challenges   the correctness of two orders passed by the High Court of Madras staying  under sec. 34 of the Arbitration Act two suits  for damages  it had instituted in the Court of  the  Subordinate Judge  at  Tuticorin.   The question  for  consideration  is whether  the first respondent in each of these two  appeals, who  are the first defendant in the respective suits out  of which these appeals arise, was " ready and willing to do all things  necessary to the proper conduct of the  arbitration"

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as  required by sec. 34.  This is really a question of  fact and the trial court found that in neither case the defendant who  applied for stay satisfied this test.  On  appeal,  the High  Court stayed the suits reversing the, decision of  the trial  court by two separate orders passed on the same  day. Whether  the High Court acted rightly would depend upon  the facts   and  circumstances  of  the  two  cases  which   are essentially  similar.   It is necessary therefore  to  state briefly the facts leading to the institution of the suits. The  appellant  Food  Corporation  of  India,  referred   to hereinafter   as  the  Corporation,  chartered   two   ships belonging respectively to M/s.  Thakur Shipping Co. Ltd. and the  Great Eastern Shipping Co. Ltd. for carrying rice  from Thailand to India.  The Charter-Party between the 148 Corporation  and the shipping companies contained a  clause, namely clause 42, which reads as follows :               "Any dispute under this charter to be referred               to  arbitration in India one Arbitrator to  be               nominated  by the owners and the other by  the               charterers  and in case the Arbitrators  shall               not agree then to the decision of an umpire to               be final and binding upon both parties." The  bills of lading provided inter alia that  the  contract between  the parties was subject to the Indian  Carriage  of Goods  by Sea Act, 1925 and that the provisions of  the  Act would be deemed as incorporated in the bills of lading.  The bills  of lading contained a clause that "no suit  shall  be maintained unless instituted within one year after the  date on which the ship arrived or should have arrived at the port of  discharge  notwithstanding any provision of law  of  any country  or state to the contrary.  The Indian  Carriage  of Goods  by  Sea Act, 1925 in clause 6 of Article III  of  the Schedule  also provides inter alia that"the carrier and  the Ship  shall be discharged from all liability in  respect  of loss or damage unless suit is brought within one year  after delivery  of  the goods or the date when goods  should  have been delivered". The ship belonging to M/s.  Thakur Shipping Co. Ltd.,  first respondent  in  Civil  Appeal No. 1518  of  1974  and  first defendant  in suit No. 103 of 1970 out of which this  appeal arises,  arrived  at Tuticorin Port, which is the,  port  of discharge.,  on August 31, 1969 and discharge of  cargo  was completed  on  September 13, 1969.  The Corporation  made  a claim  for  damage  for  short  delivery,  provisionally  on November 29, 1969 and finally on January 24, 1970.  On  July 2,  1970  the  Corporation sent a  telegram  to  the  second defendant  in the suit, M/s.  Pent Ocean  Steamship  Private Ltd.,  Bombay, who were the Operating Managers of  the  ship concerned,   asking  them  to  confirm  whether  they   were agreeable  to refer the dispute as to short delivery to  the sole  arbitration of the Director General  Shipping,  Bombay stating  that the matter was ,’most immediate". it is to  be noted that the proposed reference to the sole arbitration of Director General Shipping was a deviation from, clause 42 of the Charter-Party.  There was no reply to this telegram.  On July 8, 1970 another telegram repeating the earlier proposal was  sent  to  the second defendant  again  emphasizing  the urgency of the matter.  On July 9, 1970 the second defendant sent  a reply saying that they were no longer the  Operating Managers  and  asking the Corporation to contact  the  first defendant  for further advice.  The Corporation then sent  a telegram on July 10, 1970 to the first defendant seeking  to know if they were agreeable to have the dispute referred  to the  sole arbitration of Director General  Shipping,  Bombay

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repeating  that  the matter was "most  urgent".   The  first defendant  chose not to answer the telegram.   Any  reminder after  this,  one  expected,  would be  sent  to  the  first defendant   but   on   July   25,   1970   the   Corporation telegraphically asked the second defendant again to nominate an arbitrator in terms of clause, 42 of the Charter Party in case  the proposal for arbitration by the  Director  General Shipping,  Bombay was not acceptable.  In this  telegram  it was  stated that the time within which the claim  should  be made was to expire shortly and that failure on the Part 149 of the other side to take prompt action for reference of the dispute to arbitration would compel the Corporation to  take legal  proceedings.   Failing to get any response  from  the other  direction,  the  Corporation  ,on  August.  31,  1970 instituted  suit  No.  103  of 1970  in  the  Court  of  the Subordinate   Judge  at  Tuticorin  for  recovery   of   Rs. 1,57,724/73p. on account of short delivery and damage to the rice  shipped.  A few days more delay would have barred  the claim.   Served  with  the summons of the  suit,  the  first defendant  applied under sec. 34 of the Arbitration Act  for stay  of the suit.  As stated already, the trial  court  re- jected  the application, on appeal the High  Court  reversed that  decision and allowed the prayer for stay on  the  view that  the trial court had failed to exercise its  discretion properly.   Civil  Appeal 1518 of 1974 arises  out  of  this order. The facts in Civil Appeal 1519 of 1974 are these.  The  ship belonging to the first respondent in this appeal, the  Great Eastern  Shipping Co. Ltd., arrived at Tuticorin  Port  from Thailand  on  August  15, 1969 and discharge  of  cargo  was completed  on August 27, 1969.  By a letter  dated  November 29,  1969  addressed  to the steamer  agents  of  the  first respondent,  the clearing agents of the Corporation  made  a claim  for  short  delivery and damage  in  respect  of  the consignment of rice.  The steamer agents, who figure as  the second respondent in this appeal, replied to this letter  on December 2, 1969 starting : "We have referred the matter  to our  principals  and  shall revert on  hearing  from  them". After waiting for about four months, the clearing agents  of the Corporation again wrote to the second respondent  asking them  to contact their principals and to "settle the  claims immediately".   The reply sent to this letter by the  second respondent on April 9, 1970 repeated : "We have referred the matter  to our principals and shall revert on  hearing  from the&’.  Having heard nothing for about a month, the clearing agents   of  the  appellant  wrote again  to  the   second respondent  on May 11, 1970 wanting to know the attitude  of the first respondent regarding the, claim adding that if the claim  was not settled in time the appellant would  have  to take legal action to recover the amount of claim.  By their letter dated May 14, 1970 the second respondent acknowledged receipt of that letter and repeated for the third time  that they had referred the matter to their principals and  "shall revert  on hearing from them".  Thereafter on July  9,  1970 the second respondent wrote again to the appellant’s  agents only  to know how the appellant had disposed of the  damaged rice  adding  that  this information would  enable  them  to advise  their  principals.  Finally, on July  29,  1970  the District  Manager,  Food Corporation  of  India,  Tuticorin, wrote  to the first respondent stating, inter alia, that  if the  claim was not settled on or before August 13, 1970  the appellant  would be constrained to take legal action.   From the  dates given above, it would appear that the  claim  was going to be barred in a few days.  To this letter there  was

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no  reply.   On August 14, 1970 the  Corporation  instituted suit  No. 101 of 1970 in the Court of the Subordinate  Judge at  Tuticorin  for recovery of a sum  of  Rs.  1,12.420.70p. impleading  as the first and second  defendant  respectively the  first and second respondent of this appeal.   Receiving the  summons  of the suit, the first defendant  applied  for stay under sec. 34 of the Arbitration Act.  The trial court 150 declined  to stay the suit and rejected the application.  on appeal  the High Court held that the decision of  the  trial court  was  perverse and allowed the application  for  stay. Civil Appeal 1519 of 1974 is directed against this order  of the High Court. The  trial court held that the fact that the in either  case the  first defendant took no steps for referring the  matter to  arbitration  in  spite of being urged to do  so  by  the plaintiff  indicated that the defendants were not ready  and willing  to go to arbitration and were only waiting for  the claim to be barred by lapse of time.  As stated already, the bills  of  lading  contained a provision  that  no  suit  to enforce  such  claims would be maintainable after  one  year from  the  date  of arrival of the ship  at  the  port  of discharge.   The  Indian Carriage of Goods by Sea  Act  also provides  in  clause 6 of Article III of the  Schedule  that "the  carrier  and  the ship shall be  discharged  from  all liability  in  respect  of loss or  damage  unless  suit  is brought  within one year after delivery of the goods or  the date  when the goods should have been delivered".  The  High Court reversed the decision of the trial court relying on  a decision  of  the  Calcutta High  Court  reported  in  Subal Chandra  Bhur v. Md.  Ibrahim & Anr. (1) In that case S.  R. Das  J., as his Lordship then was. observed at one place  in his  Judgment : "Mere inaction priOr to the commencement  of the legal proceedings cannot, in my opinion, be construed as want  of readiness and willingness to go to  arbitration  at the commencement of the legal proceedings".  The  proceeding sought  to be stayed in that case was a  partnership  action and the observation was made in repelling a contention  that there should be no stay as none of the partners thought  fit to take advantage of the arbitration clause for a long  time after  the partnership came to an end.  Apparently, in  this case inaction did not affect in any way the matter  proposed to  be  referred to arbitration.  But the two suits  out  of which the instant appeals arise were instituted just  before the plaintiff’s claim in either case was going to be  barred by  time-,  it is not disputed that after the lapse  of  one year from the date when the goods were to be delivered,  the defendants would have been discharged from all liability  in respect  of any loss or damage and there would have been  no live  dispute to be referred to arbitration.  Where a  party to  an arbitration agreement chooses to maintain silence  in the  face  of repeated requests by the other party  to  take steps  for  arbitration  the  case  is  not  one  of   "mere inaction".  Failing to act when a party is called upon to do so is a positive gesture signifying unwillingness or want of readiness to go to arbitration.  The aforesaid  observation in  Subal  Chandra Bhurs case (surpra)  does  not  therefore appear to have any application on the facts of the cases be- fore us. The  High Court pointed out that in each of these two  suits the first defendant applied for stay under sec. 34 as  shown as  they  received the summons of the suit  stating  in  the application  that  they were ready and willing to  have  the dispute  settled by arbitration.  The High Court  held  that the  requirement  of sec. 34 is satisfied if  the  defendant

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expresses  his  willingness  to go  to  arbitration  at  the earliest opportunity after the (1)  A.I.R. 1943 Cal. 481.                             151 suit is instituted. in our opinion the High Court was  wrong in taking this view.  Sec. 34 of the Arbitration Act reads :               "Where  any party to an arbitration  agreement               or any person claiming under him commences any               legal  proceedings against any other party  to               the agreement or any person claiming under him               in   respect  of  any  matter  agreed  to   be               referred, any party to such legal  proceedings               may,  at any time before  filing  a  written               statement  or  taking any other steps  in  the               proceedings,  apply to the judicial  authority               before  which the proceedings are  pending  to               stay  the proceedings; and if  satisfied  that               there  is no sufficient reason why the  matter               should not be referred in accordance with the               arbitration  agreement and that the  applicant               was,  at  the time when the  proceedings  were               commenced,   and  still  remains,  ready   and               willing  to  do all things  necessary  to  the               proper   conduct  of  the  arbitration,   such               authority  may  make  an  order  staying   the               proceedings." The  observation of Das J. in Subal Chandra Bhur’s  case  on which  the High Court relied, is preceded by  the  following sentence : "Further, the readiness and willingness  required by  see. 34 of the Act has to exist at the  commencement  of the legal proceedings and has to continue up to the date  of the application for stay".  In Anderson Wright Ltd. v. Moran and  Company(1), this Court enumerating the conditions  that should be fulfilled before a stay may be granted under  sec. 34  notes  as one of the conditions that the  applicant  for stay "should satisfy the court not only that he is but  also was at the commencement of the proceedings ready and willing to  do  everything necessary for the proper conduct  of  the arbitration".  It is thus quite clear on the authorities and from the terms of sec. 34 that the readiness and willingness must exist not only when an application for stay is made but also at the commencement of the legal proceedings.  From the conduct of the first defendant in either of these two  suits the  trial court found that they were not ready and  willing to  go  to  arbitration  at the time  when  the  suits  were instituted.   This  is a finding of fact and we  are  afraid there  was no valid ground in either case  for  interference with  this finding.  From the letters written on  behalf  of the Corporation to the agents of the first defendant in  the suit giving rise to Civil Appeal 1519 of 1974 urging them to take steps for referring the dispute to arbitration and  the evasive replies sent to these letters, the trial court  came to the conclusion that the first defendant was not ready and willing  to go to arbitration at the time when the suit  was instituted.   We  do  not think this  was  an  arbitrary  or perverse conclusion as the High Court characterized it.   In our  opinion  the  High Court  went  wrong  in  disregarding relevant    and    significant   material,    namely,    the correspondence   that   passed  between  the   parties,   as "innocuous" and erred in disturbing the finding of fact  for no valid reason. As regards the suit which gives rise to Civil Appeal 1518 of 1974,  the trial court repelled the contention that  as  the Corporation’s  proposal  to refer the dispute  to  the  sole arbitration of the Director General

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(1) [1955] 1 S.C.R. 862. 152 Shipping,  Bombay was different from what clause 42  of  the Charter  Party provided, the defendant was justified in  not replying  to the telegrams or doing anything for the  proper conduct  of  the arbitration.  The argument that  the  trial court  rejected found favour with the High Court.  That  the Corporation’s proposal was a deviation from clause 42 of the Charter-Party was hardly a valid excuse for the first defen- dant to remain silent and inactive.  If the first  defendant were ready and willing to go to arbitration, one would  have expected them, as the trial court observed, to reply to  the telegrams  saying  that  they were  not agreeable  to  any departure  from the terms of clause 42 and could  insist  on compliance with that clause.  But they did not reply to  the telegrams  or  do anything for reference of the  dispute  to arbitration as provided in clause 42.  Silence and  inaction on  their part may in these circumstances very well  justify the  inference that they were not ready or willing to go  to arbitration.   The finding of the High Court that the  trial court  had  exercised its discretion not  judicially  cannot therefore be supported.  And in this case really no question arises  as to exercise of discretion.  Granting  stay  under sec. 34 is of course discretionary as the section  indicates but  the  occasion for the exercise of discretion  does  not arise  unless all the conditions stated in the  section  are fulfilled.   In  this case the trial court found as  a  fact that the first defendant was not ready and willing to go  to arbitration  when the suit was instituted and we  have  held that  the finding is not perverse or arbitrary; one  of  the requirements of the section not having been fulfilled,  sec. 34 could not be invoked in this case. Mr. Desai for the respondent relied on certain  observations of  this Court in Michael Colodetz & Ors. v. Serajuddin  and Company(1)  in  support of the proposition  that  the  Court should  not  allow a party to an  arbitration  agreement  to proceed with the suit in "breach of the solemn obligation to seek resort to the tribunal selected by him".  It is however made clear in that decision that these observations are sub- ject to the terms of sec. 34, one of which is that the other party to the agreement must remain "ready and willing to  do all   things  necessary  for  the  proper  conduct  of   the arbitration".   The  legal  position is  explained  in  that decision as follows               "The Court ordinarily requires the parties  to               resort for resolving disputes arising under a               contract to the tribunal contemplated by  them               at  the  time of the contract.   That  is  not               because  the  Court regards  itself  bound  to               abdicate   its  jurisdiction  in  respect   of               disputes  within  its  cognizance,  it  merely               seeks  to promote the sanctity  of  contracts,               and  for  that purpose stays  the  suit.   The               jurisdiction  of  the Court to  try  the  suit               remains undisputed : but the discretion of the               court     is    on    grounds    of     equity               interposed.........  It  is  for  the   court,               having  regard  to all the  circumstances,  to               arrive  at  a  conclusion  whether   sufficient               reasons  are  made out for refusing  to  grant               stay.   Whether the circumstances in  a  given               case make out sufficient reasons for  refusing               to stay a suit is -essentially a question  of               fact." (1)  [1964] 1 S.C.R. 19.

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153 For the reasons stated above we think that the, appeals must succeed.   Accordingly  we allow both the  appeals  and  set aside  the order of the High Court and restore that  of  the trial  court  in each of these two cases.  In  Civil  Appeal 1519 of 1974 the appellant will be entitled to its costs  in this  Court  and in the High Court  against  the  contesting respondent.   In Civil Appeal 1518 of 1974, considering  all aspects,  we  direct  the parties to bear  their  own  costs throughout. V. P. S.                              Appeals allowed. 154