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PETITIONER: ORIENT TRANSPORT CO. GULABRA AND ANOTHER.

       Vs.

RESPONDENT: JAYA BHARAT CREDIT AND INVESTMENT CO., LTD.,AND ANR.

DATE OF JUDGMENT07/09/1987

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) OZA, G.L. (J)

CITATION:  1987 AIR 2289            1988 SCR  (1)  47  1987 SCC  (4) 421        JT 1987 (3)   575  1987 SCALE  (2)581

ACT:      Arbitration  Act,   1940-Maintainability  of  suit  for declaration  under   section  32   thereof-In   respect   of agreements/contracts relating to transaction of loan.

HEADNOTE:      The appellant/plaintiffs filed a suit for a declaration that the  eight agreements/contracts  executed  between  the appellants and  the defendant/respondent  No.  1,  were  not ’hire-purchase agreements’  but were  agreements relating to the  transaction  of  loan.  The  suit  was  dismissed.  The appellate Court  confirmed the  decision of the Trial Court. There was  a second appeal to the High Court, whereafter the appellants moved  this Court  by special  leave against  the judgment and order of the High Court.      Allowing the Appeal, the Court,      HELD: The suit had been dismissed on the ground that it was not maintainable in view of the provisions of section 32 of  the  Arbitration  Act,  1940.  Section  32  of  the  Act stipulates that  notwithstanding any  law for the time being in force,  no suit  shall lie on any ground whatsoever for a decision upon  the  existence,  effect  or  validity  of  an arbitration agreement  or award,  nor shall  any arbitration agreement or award be enforced, set aside, amended, modified or in  any way  affected otherwise  than as  provided in the Act. [49B-C]      Specific case  of the  appellants was  that  it  was  a transaction of  loan and  there was  in fact no agreement of arbitration. It  appeared from  the plaint  as well  as  the issues framed  that the  very  existence  of  the  agreement described as  hire-purchase agreement  was put in issue. The execution of the documents was not denied but it was alleged that these were manipulated documents and that there were in fact  no   agreements  which   contained   the   arbitration agreement. [50A-C]      Section 32  of the Act does not contemplate the case of suits challenging  the validity  of a  contract  because  it contains an arbitration 48 clause. The  section has a very limited application, namely, where the  existence  of  the  validity  of  an  arbitration

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agreement and  not the  contract containing  the arbitration agreement is challenged. [50D-E]      Every person  has a right to bring a suit which is of a Civil nature and the Court has jurisdiction to try all suits of Civil  nature under  section  9  of  the  Code  of  Civil Procedure. That  right has not been taken away by section 32 of the  Act. One  of the  issues, framed namely. issue No. 4 was "whether  the defendant  No. 1  obtained disputed  hire- purchase agreements  from the plaintiffs in pursuance of its money lending business?" The existence of the disputed hire- purchase agreements  was put  in issue.  It is true that the execution of  an alleged  document was not in issue, but the existence of  that document  as an arbitration agreement was in issue.  Section 32  of the  Act does  not purport to deal with suits for declaration that there was never any contract or that  the contract  is  void.  This  principle  is  well- settled. In State of Bombay v. Adamjee Hajee Dawood and Co., A.I.R. 1951  Calcutta 147, the Calcutta High Court held that section 32  of the  Act does  not contemplate  the case of a suit challenging  the validity  of a contract merely because it contains  an arbitration  clause.  This  is  the  correct position in  law, and  in the facts and circumstances of the case, the  trial Court,  the appellate  Court and  the  High Court in this case were in error. Their judgments and orders were set aside. [50E-H; 51A-C]      State of  Bombay v.  Adamjee Hajee  Dawood & Co., A.I.R 1951 Cal. 147, referred to.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeal No. 2286 of 1987.      From the  Judgment and  Order dated  17.12.1986 of  the Madhya Pradesh High Court in S.A. No. 536 of 1985.      V.M. Tarkunde, K.M.K. Nair for the Appellants.      Mukul Mudgal for the Respondents.      The Judgment of the Court was delivered by      SABYASACHI MUKHARJI, J. Special leave granted.      This is  an appeal  from the  judgment and order of the High Court  of Madhya  Pradesh dated 17th of December, 1986. The appeal was 49 filed by the plaintiff whose suit for a declaration that the eight  agreements/contracts  executed  between  it  and  the defendant  No.  1  M/s.  Jayabharat  Credit  and  Investment Company Ltd.  were not  ’hire purchase  agreements’ but were agreements  relating   to  transaction   of  loan   and  for injunction restraining  the defendant  no. 1. from enforcing them until  the decision  of the suit, had been dismissed on the ground that the suit was not maintainable in view of the provisions of  section  32  of  the  Arbitration  Act,  1940 (hereinafter called  ’the  Act’).  Section  32  of  the  Act stipulates that  notwithstanding any  law for the time being in force  no suit  shall lie  on any ground whatsoever for a decision upon  the  existence,  effect  or  validity  of  an arbitration agreement  or award,  nor shall  any arbitration agreement or award be enforced, set aside, amended, modified or in  any way  affected otherwise  than as  provided in the said Act.  The execution of documents containing the alleged arbitration clause was not disputed in this case. The clause was as follows:           "All disputes,  differences or  claims arising out           of this  agreement shall be settled by arbitration           in  accordance   with  the   provisions   of   the

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         Arbitration Act,  1940 or any statutory amendments           thereof  and   shall  be   referred  to  the  sole           arbitration of  a person  to be  nominated by  the           owners. In  the event  of death, refusal, neglect,           inability  or   incapability  of   the  person  so           appointed to  act as  arbitrator, the  owners  may           appoint  a   new  arbitrator.  The  award  of  the           arbitrator shall  be final  and binding on all the           parties concerned."      Various issues  were framed  by the  trial  court.  The appellate court  confirmed the  said decision.  There was  a second appeal  to the  High Court. The High Court framed the question of law in the impugned judgment as follows:           "Whether the  courts below  were right  in holding           that section  32 of the Arbitration Act barred the           suit and in dismissing the same on that ground? It was contended before the High Court by the appellant that the so-called  ’hire purchase  agreements’ were nothing else than agreements  entered  into  by  the  plaintiff  and  the defendant No.  1 with respect to transaction of loan. It was the case  of the  appellant  that  the  alleged  arbitration agreement was  not entered  into as such in the sense though certain documents  were executed,  these were  not  properly understood as  hire purchase agreements. Therefore, the main ques- 50 tion was  whether the  existence of  the agreement  as  hire purchase agreement  was denied  by the  appellant and put in issue before  the court.  Specific case of the appellant was that this was a transaction of loan and there was in fact no agreement of arbitration. It appears from the perusal of the plaint as  well as the issues framed that the very existence of the  agreement described  as hire purchase agreements was put in  issue. The execution of the documents was not denied but it was alleged that these were manipulated documents, in other words fraudulent documents and it was further the case of the appellant that there were in fact no agreements which contained  the   arbitration  agreement.  The  case  of  the appellant was  that there  was no  document  containing  any valid arbitration  agreement in  existence.  This  fact  was raised in the plaint and issue to that effect was raised, in other words  that the  appellant, plaintiff in this case was contended that  the agreement  described  as  hire  purchase agreements were  untrue and  void procured fraudulently. The issues framed  by the learned trial judge also included this specific point.  Section 32  of the Act does not contemplate the case  suits  challenging  the  validity  of  a  contract because it  contains an arbitration clause. If the intention of the  legislature were  that all  documents containing  an arbitration  clause   should  come  within  the  purview  of sections 32  and 33,  the legislature  would have said so in appropriate  words.  These  sections  have  a  very  limited application, namely,  where the  existence of validity of an arbitration agreement  and not  the contract  containing the arbitration agreement is challenged. Every person, it has to be borne  in mind has a right to bring a suit which was of a civil nature and the court had jurisdiction to try all suits of civil  nature under  section  9  of  the  Code  of  Civil Procedure. That  right has not been taken away by section 32 of the  Act. Such  a right can only be taken away by express terms or  by necessary  implication. Section  32 of  the Act does not  have that  effect. We  have perused  the plaint in this case;  one of  the issues,  namely,  issue  No.  4  was "Whether the defendant No. 1 obtained disputed hire purchase agreements from  the plaintiffs  in pursuance  of its  money

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lending  business?"  The  existence  of  the  disputed  hire purchase agreements were put in issue. It was suggested that these were  obtained by  dubious method  or that  these were fraudulently procured.  It is  true that the execution of an alleged document  was not in issue but the existence of that document as  an arbitration agreement was in issue. Sections 32 and 33 of the Act on the true construction do not purport to deal  with suits for declaration that there was never any contract or  that contract  is void. This principle is well- settled. The  Division Bench  of  the  Calcutta  High  Court consisting of  Harries, C.J.  and Banerjee,  J. in  State of Bombay v. Adamjee Hajee Dawood and Co., A.I.R. 1951 Calcutta 147 held that 51 section 32  of the  Act does  not contemplate  the case of a suit challenging  the validity  of a contract merely because it contains  an arbitration  clause.  This  is  the  correct position in  law. If  that is  the law then in the facts and circumstances of  the case  the  learned  trial  court,  the learned appellate  court and the High Court were in error in this  case   in  dismissing   the  suit   and  the   appeals respectively.      The appeal  is, therefore, allowed and the judgment and order of  the High Court and the courts below are set aside. In the  facts and  circumstances of  the case  costs of  the parties will be costs in the suit. The suit will now proceed as expeditiously as possible. S.L.                                         Appeal allowed. 52