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PETITIONER: MICHAEL GOLODETZ AND OTHERS

       Vs.

RESPONDENT: SERAJUDDIN & COMPANY

DATE OF JUDGMENT: 12/12/1962

BENCH: SHAH, J.C. BENCH: SHAH, J.C. GAJENDRAGADKAR, P.B. WANCHOO, K.N. GUPTA, K.C. DAS

CITATION:  1963 AIR 1044            1964 SCR  (1)  19  CITATOR INFO :  E          1975 SC 469  (8)  RF         1981 SC2085  (19,23,25,26)

ACT: Arbitration-Contract to supply goods between an Indian  Firm and a Foreign Firm --Arbitration clause to refer disputes to a foreign Tribunal--The foreign Firm refers the dispute to a foreign Tribunal-- The Indian Firm files a suit in the  High Court-Cancellation  of the Contract-Injunction  to  restrain the other party from proceeding with arbitration-Petition in the High Court to stay suit-power of court to entertain  the Suit-Exercise  of  discretion-Arbitration Act,  1940  (X  of 1940) s. 34.

HEADNOTE: The appellants are a firm carrying on business in the United States  of  America.  The respondents are  an  Indian  Firm. These two firms entered into a contract in writing by  which the   appellant  agreed  to  buy  certain  goods  from   the respondents.  An arbitration clause in the contract provided that disputes arising out of the contract are to be  settled by  arbitration  in New York according to the rules  of  the American  Arbitration Association.  Disputes  having  arisen the   appellants   referred  them   to   arbitration.    The respondents  thereupon filed a suit on the Original side  of the Calcutta High Court for the cancellation of the contract and for the issue of a perpetual injunction restraining  the appellants from taking steps in purported enforcement of the contract.   The appellants then filed a petition before  the same High Court for the stay of that suit under s. 34 of the Arbitration Act, 1940.  This petition was heard by a  Single Judge  who  held that the remedy of the party  aggrieved  by manner  in  which the proceedings are conducted  by  foreign Tribunal was to contest the proceedings according to the law applicable to the tribunal and that the respondents have not shown  sufficient reasons for not granting stay.  In  appeal under  the  Letters Patent the order was set aside  and  the appellants appealed with special leave. The main question before this Court was whether the Court of first  instance  has  or has not  exercised  its  discretion

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properly in granting stay. Held,  that a clause in a commercial contract  between  mer- chants residing in different countries to go to  arbitration is 20 an  integral part of the contract on the faith of which  the contract  is  entered into, but that does not  preclude  the court  having territorial jurisdiction from  entertaining  a suit  at the instance of one of the parties to the  contract even  in  breach  of the  covenant.   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.  The court may  in  such cases refuse its assistance in a proper case when the  party seeking  it is without sufficient reason resiling  from  the bargain.   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. In  the present case all the evidence of the parties was  in India,   and  the  current  restrictions  imposed   by   the Government of India on the availability of foreign exchange, made  it  impossible  for the  respondents  to  carry  their witnesses to New York for examination before the arbitrator. The  proceeding before the arbitrator would in effect be  ex parte.    The  High  Court  was  therefore  right   in   its conclusion, on a review of the balance of convenience,  that stay should not be granted.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 493 of 1960. Appeal  by special leave from the judgment and  order  dated April  29,1959,  of the Calcutta High Court in  Appeal  from Original Order No. 177 of 1958. S.  T.  Desai,  D. N. Mukherjee and B.  N.  Ghosh,  for  the appellants. C. K. Daphtary, Solicitor General of India, S. K. Kapur  and P. C. Chatterjee, for the respondent. 1962.   December  12.     The  judgment  of  the  Court  was delivered by SHAH,J.-The  appellants are a firm carrying on  business  as importers in the name and style of "M. 21 Golodetz  &  Company" at 120, Wall Street, New York  in  the United  States  of  America.  The  respondents  are  a  firm carrying on business, among others as exporters of manganese ore  and their principal office of business is  at  Bentinck Street  in the town of Calcutta.  By a contract  in  writing dated  July 5, 1955 the respondents agreed to sell  and  the appellants agreed to buy 25,000 tons of manganese ore on the terms   and  conditions  set  out  therein.   The   contract contained the following arbitration clause :               "Arbitration : Any dispute arising out of  the               contract  is to be settled by  arbitration  in               New  York  according  to  the  rules  of   the               American Arbitration Association." Between  September  1956  and August  1957  the  respondents supplied 5478 tons of manganese ore.  Disputes having arisen between  the parties about the liability of the  respondents to  ship  the  balance  of  the  goods  not  delivered,  the appellants referred them on or about January 15, 1958 to the

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arbitration  of  the American  Arbitration  Association  and claimed  compensation on the plea that the  respondents  had unlawfully made default in shipping the balance of the goods agreed  to  be sold.  On February 2,  1958  the  respondents commenced  an action on the original side of the High  Court of  Calcutta  claiming a decree that  the  written  contract dated  July  5, 1955 be adjudged void and delivered  up  and cancelled, that a perpetual injunction be issued restraining the appellants, their servants and agents from taking  steps in  purported  enforcement of the said contract and  that  a declaration  (if necessary) be made that the  said  contract stands  discharged and that the parties have no  rights  and obligations thereunder.  It was the case of the  respondents that the appellants had accepted manganese ore shipped  till August 1957 in full satisfaction of their liability and that the contract was discharged and the rights and liabilities 22 of   the  parties  thereunder  came  to  an  end.   In   the alternative the respondents pleaded that the appellants  had repudiated  the contract or had committed  breaches  thereof and  on that account also the contract stood  discharged  or had  become void or voidable at their option and  that  they had  avoided  the  same.  In the  further  alternative  they pleaded  that the contract had become impossible of  further performance and that the same stood frustrated or discharged and  they  were exempted from further  performance  thereof. The  appellants  thereupon  petitioned  the  High  Court  of Calcutta  for an order that the proceedings in suit No.  194 of  1958 commenced by the respondents be stayed by an  order under  s. 34 of the Arbitration Act X of 1940. and  that  an injunction  be  issued restraining  the  respondents,  their agents and servants from proceeding with the hearing of  the suit.   Ray,  J,  who heard the petition held  that  to  the agreement to submit the disputes to arbitration to a foreign arbitral  body  s. 34 of the Indian Arbitration  Act,  1940, applied that the remedy of the party aggrieved by the manner in which the proceedings are conducted, or by the award  was to  contest the arbitration proceeding and the award in  the foreign  tribunal, according to the law applicable  thereto, and that there was no sufficient reason for not staying  the action  filed  in  breach  of the  agreement  to  refer  the disputes  arising  under the contract  to  arbitration.   In appeal under the Letters Patent against the order, the  High Court  held  that  the  Court  of  first  instance  had  not exercised its discretion properly for it had failed to  take into consideration certain important circumstances  emerging from the evidence, viz. that all the evidence regarding  the contract  and the disputes was in India, that there were  on account  of  the restrictions imposed by the  Government  of India special difficulties in securing foreign exchange  for producing  evidence before a foreign  arbitration  tribunal, that  it would be impossible for the respondents to  produce their evidence and there- 23 fore  the foreign arbitration tribunal "would Dot be a  safe and  convenient forum for a just and proper decision of  the disputes  between  the  parties." The  learned  judges  also observed  that  it  was conceded  by  the  Advocate  General appearing on behalf of the appellants that the entire matter would be governed by the Indian laws, the Indian Arbitration Act and the Indian Contract Act and on that account also the discretion of the Court to refuse to stay the suit should be exercised.  The High Court accordingly reversed the judgment of  Ray, J., and vacated the order passed by  him.   Against that order, with special leave, this appeal is preferred.

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We will assume for the purpose of this appeal that s. 34  of the  Arbitration  Act, 1940 invests a Court  in  India  with authority to stay a legal proceeding commenced by a party to an arbitration agreement against any other party thereto  in respect  of any matter agreed to be referred, even when  the agreement is to submit it to a foreign arbitration tribunal. Where  a  party  to an arbitration  agreement  commences  an action  for determination of a matter agreed to be  referred under  an arbitration agreement the Court  normally  favours stay  of the action leaving the plaintiff to resort  to  the tribunal chosen by the parties for adjudication.  The  Court in such a case is unwilling to countenance, unless there are sufficient reasons, breach of the solemn obligation to  seek resort  to the tribunal selected by him, if the other  party thereto  still  remains ready and willing to do  all  things necessary  for  the proper conduct of the  arbitration  This rule  applies to arbitrations by tribunals, foreign as  well as  domestic.   The  power  enunciated  by  s.  34  of   the Arbitration  Act  is  inherent  in the  Court  :  the  Court insists,  unless sufficient reason to the contrary  is  made out,  upon  compelling the parties to abide  by  the  entire bargain,  for not to do so would be to allow a party to  the contract to approbate and reprobate, and this  consideration may 24 be  stronger in cases where there is an agreement to  submit the dispute arising under the contract to a foreign arbitral tribunal.   A  clause in a  commercial  transaction  between merchants   residing  in  different  countries  to   go   to arbitration  is an integral part of the transaction, on  the faith  of which the contract is entered into, but that  does not preclude the Court having territorial jurisdiction  from entertaining a suit at the instance of one of the parties to the   contract,   even  in  breach  of  the   covenant   for arbitration.   The  Court  may in such  a  case  refuse  its assistance  in a proper case, when the party seeking  it  is without  sufficient reason resiling from the bargain.   When the  Court  refuses to stay the suit it declines to  hold  a party to his bargain, because of special reasons which  make it inequitable to do so.  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.  The Court is therefore not obliged to grant  stay  merely because the parties have  even  under  a commercial  contract  agreed to submit their  dispute  in  a matter to an arbitration tribunal in a foreign country.   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. In the present case the circumstances, in our judgment,  are somewhat  peculiar.   The appellants in their  petition  for stay averred that the petition was bona fide, and was  filed at the earliest possible 25 opportunity,  that the appellants were ready and willing  to do  all  things  necessary for the  proper  conduct  of  the arbitration  proceeding and there was no  sufficient  reason

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why the matters in respect of which the suit had been  filed could not be referred to arbitration in accordance with  the arbitration  agreement.  The respondents by  their  counter- affidavit  contended that the entire evidence regarding  the subject-matter  of  the  suit  and  all  the  witnesses   in connection  therewith were in India and that no part of  the evidence  regarding any of the aforesaid matters was in  New York.  They also submitted that the proper law applicable to the contract dated July 5, 1955 was the Indian law and  that the  Indian  law of Contracts would govern  the  rights  and obligations  of the parties.  They also contended  that  the suit  raised  difficult questions of law applicable  to  the contract,  and  on  that account also  they  should  not  be required  to submit the dispute to adjudication by  lay-men. It was also submitted that the arbitration clause even if it was  binding on the respondents firm contemplated a  foreign arbitration i.e. the arbitration was to be held in New  York and any award, that might be made would be a foreign  award, the  arbitrators  not being subject to the  control  of  the Courts  in  India  and  therefore  the  provisions  of   the Arbitration  Act including s. 34 would not be availed of  by the  appellants.  By their counter-affidavit the  appellants did not challenge the assertion made by the respondents that all the evidence in connection with the dispute was in India and  that  no  part of the evidence was in  New  York.   The constituted  attorney of the appellants in paragraph  11  of his  counter-affidavit  merely affirmed that "’there  is  no sufficient  reason why the matters in respect of  which  the said  suit  has  been  filed  should  not  be  referred   to arbitration in accordance with the arbitration clause in the said  agreement.   I  deny that there is  any  valid  and/or sufficient  reason  why  the said  disputes  which  are  the subject-matter of the said suit should not be so referred 26 to  arbitration.  I further say that it would be a cause  of injustice  to  the petitioners to  permit  the  respondents, subsequent  to the conclusion of a contract to pick  and  to choose  as whim or prejudice may dictate which  clauses  are binding and which are "inoperative."   He further stated  in paragraph  12  I do not admit that evidence with  regard  to matters  mentioned in the said paragraph (10(a) of the  res- pondent’s affidavit) is necessary or cannot be given  before the  arbitrators  as alleged.  In particular, deny  that  if arbitration   is   held  in  terms  of  the   agreement   as deliberately concluded by and between the parties there will be  any  denial of justice as alleged or at all.  I  do  not admit  that  it  will be necessary or that it  will  not  be possible for the respondent to send any representative or to take any witness to New York as alleged.  On the other hand, if  the suit is not stayed, the petitioners will be  greatly prejudiced and will suffer hardship." The High Court addressed itself to the question, whether the pleas  raised  by  the  respondents  constituted  sufficient reason  within  the  meaning of  the  Arbitration  Act,  and pointed  out, and in our judgment it was right in so  doing, that  the statement made in the affidavit of the  respondent had remained practically unchallenged, that all the evidence in  the case relating to the disputes was in India and  that was  a  strong ground for not exercising the  discretion  in favour  of the appellants.  It must be observed that  having regard  to the severe restrictions imposed in the matter  of providing  foreign exchange to individual citizens it  would be impossible for the respondents to take their witnesses to New  York  and  to  attend before  the  arbitrators  at  the arbitration  proceeding to defend the case against them  and

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the proceeding before the arbitrators would in effect be  ex parte.   That would result in injustice to the  respondents. Undoubtedly   the   appellants   would  be   put   to   some inconvenience if they are required to defend 27 the suit filed against them in India, but the High Court has considered  the  balance  of  inconvenience  and  the  other circumstances  and  has come to the conclusion, and  in  our judgment   that   conclusion  is  right,  that   the   facts established  make out ’sufficient reason’ for  not  granting stay. It  was  urged by counsel for the appellants that  the  High Court  for reasons which were not adequate  interfered  with the order which was within the discretion of the trial judge and  on that account the order must be set aside.   But  the High Court has pointed out that Ray, J., ’did not give full, proper  and adequate consideration to all the  circumstances and  failed  to apply his mind to the  relevant  affidavits’ from which it emerged that all the evidence relating to  the dispute  was in India and that he did not express his  views on  the diverse contentions raised and remained  content  to observe  that  he  was  not in  a  position  to  decide  the questions raised thereby and granted stay because he did not find  any compelling reasons for exercising  the  discretion against  the appellants.  This criticism of the  High  Court appears not to be unjustified.  The High Court was therefore competent  on  the view expressed in  interfering  with  the discretion. The two Courts below have differed on the question as to the law  applicable  to the contract.  Ray, J.,  held  that  the contract was governed by the American law.  In appeal Mr. S. Choudhry appearing for the appellants propounded that  view, but the Advocate-General of Bengal who followed him conceded (as  observed  by the High Court) that  the  "entire  matter would  be  governed  by  the  Indian  law,  the  matter   of arbitration  by  the Indian Arbitration Act, and  the  other matters under the aforesaid contract by the Indian  Contract Act,  x x x x x so far as the rights and  obligations  under the disputed contract are concerned, the parties must now be taken 28 to have accepted the Indian Contract Act as the relevant law for  their  determination." Counsel for the  appellants  say that  no such concession was made before the High  Court  by the  Advocate-General,  and  the observations  made  in  the judgment  were  the result of some  misconception.   Counsel relies in support of this submission upon an affidavit sworn by  one  Surhid  Mohan Sanyal constituted  attorney  of  the appellants  filed in this Court on the day on which  special leave  to appeal was granted.  Apart from  the  circumstance that the affidavit is couched in terms which are vague,  and the  denial  is  not sworn on matters  within  the  personal knowledge  of  the  deponent,  it  is  a  somewhat  singular circumstance,  that  Sanyal who swore the  affidavit  relied upon,  did not when he swore an affidavit in support of  the petition for certificate under Art. 133 of the  Constitution before the High Court, make any such assertion. But on the view expressed by us, we deem it advisable not to express any opinion on the question as to the law applicable to  the contract.  It will be for the Court trying the  suit to deal with that question, and to decide the suit. The appeal therefore fails and is dismissed with costs.                      Appeal dismissed. 29

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