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PETITIONER: RAMJI DAYAWALA & SONS (P) LTD.

       Vs.

RESPONDENT: INVEST IMPORT

DATE OF JUDGMENT09/10/1980

BENCH: DESAI, D.A. BENCH: DESAI, D.A. SHINGAL, P.N.

CITATION:  1981 AIR 2085            1981 SCR  (1) 899  1981 SCC  (1)  80  CITATOR INFO :  R          1982 SC1302  (8)  D          1988 SC  30  (5)  R          1989 SC 818  (10,13)

ACT:      Arbitration Act  1940, S.  34; Code  of Civil Procedure 1908. S. 15; Arbitration (Protocol and Convention) Act 1937, S. 3; & Foreign Awards (Recognition & Enforcement) Act,S. 3- Sub-contract  between  Indian  firm  and  foreign  firm-Sub- contract incorporating  an agreement  to refer disputes to a foreign  arbitral   tribunal-After  execution  of  agreement Indian firm  repudiating the  arbitration agreement-Suit for recovery  in   High  Court   by  Indian   firm-Foreign  firm contesting that  suit to be stayed on account of arbitration clause in  the agreement-Single  Judge  and  Division  Bench deciding stay of suit necessary-Decision-Whether valid-power of court to stay suit-Exercise of discretion by trial court- Interference by appellate court.

HEADNOTE:      The appellant (plaintiff), a private limited company, a labour contractor,  entered into  a  sub-contract  with  the respondent (defendant),  a Yugoslavia based company which in turn had  entered into a contract with the State Electricity Board for setting up a power station. The sub-contract dated July 10,  1961 between  the  appellant  and  the  respondent incorporated an  agreement to refer all the disputes arising out of  the sub-contract to arbitration by the International Chamber  of  Commerce  in  Paris  with  the  application  of Yugoslav materials  and economical  law. In carrying out the work undertaken under the sub-contract,the appellant claimed that it  carried out  some  extra  work  for  which  it  was entitled to  recover extra  amounts from the respondent, and as the  claims  were  not  satisfied  or  met  with  by  the respondent, the appellant filed a civil suit on the original side of  the High  Court for  recovery of  the amount.  On a notice of  motion taken out by the appellant, the High Court granted an  ad interim  exparte injunction  restraining  the respondent from  withdrawing the  money due  to it  from the State Electricity Board.      Pursuant to  service of  the aforesaid notice of motion the respondent  moved an  application under  sec. 151 of the

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Code of  Civil Procedure,  alleging in the petition for stay that the disputes and differences that arose were in respect of and/or  relating to  the sub-contract dated July 10, 1961 and in view of the subsisting agreement to refer disputes or differences arising  under or  out of  the  sub-contract  to arbitration, the  suit filed  by  the  appellant  should  be stayed. The  appellant filed  a counter-affidavit contending that there was no concluded agreement between the parties to refer all  the disputes  arising out  of the  subcontract to arbitration and  alleged that by letter dated July 10, 1961, the very dated on which the sub-contract was entered into at Belgrade, the Managing 900 Director of  the appellant  company informed  the respondent that he  had objected  to  the  arbitration  clause  in  the agreement. It was also averred that a cable was also sent by the Managing  Director on  reaching Bombay  on July 13, 1961 requiring that  the clause regarding arbitration be deleted. Second contention  was that even if it is held that there is a subsisting arbitration agreement, having regard to all the circumstances of  the case,  the discretion  should  not  be exercised in favour of the defendant-respondent.      The Single Judge granted the petition of the respondent and stayed  further proceedings  in the  suit filed  by  the appellant, and  vacated the ad interim injunction granted in favour of the appellant.      The appellant  preferred two  appeals. One  against the order of  the single  Judge granting stay of the suit of the appellant and  the other  against the  order vacating the ad interim injunction.  A Division  Bench  of  the  High  Court dismissed both the appeals by a common judgment holding that there was  a valid  subsisting arbitration agreement between the parties  and that  it was  binding on both. It also held that the  claims made by the appellant in the suit arose out of the sub-contract which included the arbitration agreement and, therefore,  the appellant  must be bound by the bargain undertaken by  him. It  negatived the appellant’s contention that  on   the  facts   and  circumstances   of   the   case discretionary relief  of grant  of stay  of suit would cause irreparable hardship and deny justice.      In appeal  to this  Court against  the order of stay of the suit  granted by  the High  Court, it  was contended  on behalf  of   the  appellant:  (1)  there  was  no  concluded arbitration agreement  between  the  parties  to  refer  the disputes arising out of the sub-contract dated July 10, 1961 to arbitration  and, therefore,  the suit  cannot be stayed; (2) even  if the Court came to the conclusion that there was such a subsisting arbitration agreement between the parties, prayer for  stay having  been made  under section  51 of the Code of  Civil Procedure  and/or under  section  34  of  the Arbitration Act,  1940, read with Section 151 CPC, the Court should not  enforce it  in its discretionary jurisdiction as it would  result in  miscarriage of  justice; (3) in view of the provisions  contained in  the Arbitration  (Protocol and Convention)  Act,  1937  the  Court  could  not  invoke  its inherent jurisdiction  under section 151 CPC and the Special Act would  not assist  the respondent  as the  case was  not covered by  its provisions.  It was  also contended that the undermentioned circumstances  when properly  evaluated would unmistakably indicate  that the  instant case  is not  a fit case in  which the  Court should  decline to adjudicate upon the dispute  brought to it by granting stay in favour of the respondent. (1)  The work  under the special contract Ext. A dated July  10, 1961  was executed  and carried out in India and the  whole of  the evidence  both for  and  against  the

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appellant in  India,(2) the amount claimed in the suit is so disproportionately small  in relation  to the  huge cost  of arbitration to  be held  at Paris in France that forcing the appellant to  incur the  cost to  realise such  a small  sum would be denial of justice, (3) restrictions on availability of foreign  exchange is  a relevant consideration, a fact of which the  Court can  take judicial  notice, (4)  the  Court should not render its assistance by granting stay to one who insists on arbitration not as a matter of principle but with a view  to thwarting, stiffing or exhausting the other side, and (5)  in all  cases of  arbitration by a foreign arbitral tribunal there is always a rider that in case of hardship or injustice, Courts  of the  country of the party being forced to go to foreign arbitral tribunal will protect him. 901      On behalf  of the  respondent it was contended that (1) even if  the court   proceeds  on the  assumption  that  the letter and  the cable  were received,  it is not open to the Court to  look into the contents of the letter and the cable because the  contents  were  not  proved,  as  the  Managing Director of  the appellant  company who was supposed to have signed the  letter and  the cable  had neither  entered  the witness box  nor filed  his affidavit  proving the  contents thereof, (2)  that  once  the  sub-contract  was  admittedly signed  and   executed  by  the  Managing  Director  of  the appellant company,  subsequent  attempt  on  behalf  of  the appellant to repudiate a part of the contract would be of no avail and  the court  cannot give effect to it except if the novatio suggested by the appellant was unreservedly accepted and agreed  to by the respondent, and (3) when the motion is addressed to  the discretion  of the court and the court has exercised its discretion, the appellate Court should be slow to interfere with the discretionary order and substitute its own discretion  in place  of the  discretion  of  the  court before which the motion was addressed.      Allowing the appeal, ^      HELD: 1. Both the learned Single Judge and the Division Bench of  the High  Court were  in error in granting stay of the suit. The stay of the suit granted by the learned Single Judge and  affirmed by  the Division  Bench is  vacated. The suit should  proceed further  from the  stage where  it  was stayed. The  trial court  would  give  priority  to  it  and dispose it of as expeditiously as possible. [928G-H]      2. The  sub-contract marked Ext. A had been signed both by the Managing Director of the appellant company as well as on behalf  of the respondent company. The third paragraph of Article 12  of sub-contract  Ext. A  recites an  arbitration agreement. The  provision is  for a  reference  of  disputes arising  out   of  the   sub-contract  to  foreign  arbitral tribunal, namely,  the International  Chamber of Commerce in Paris. Such  a clause  spells out  an arbitration agreement. [908E-F]      3. (i)  The Appellate Bench of the High Court held that the  letter   and  the   cable  were  not  received  by  the respondent. This conclusion is not only contrary to evidence on record but reached in utter disregard of the admission of the Manager of the respondent. [910A-B]      (ii) The  letter and  the cable  would  show  that  the arbitration  agreement   to  refer  disputes  to  a  foreign arbitral tribunal  in the  draft was  not acceptable  to the appellant  though  the  other  terms  were  acceptable.  The appellant repudiated  the arbitration  agreement soon  after the agreement  was signed  when the Managing Director of the appellant was  in Belgrade  and took the follow up action by

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sending a  cable reiterating  and  repeating  the  objection immediately after  his return  to India. After this specific objection with  regard to  arbitration agreement in the sub- contract, the  respondent allowed  the appellant  to proceed further with  the implementation  and execution  of the sub- contract,  without  controverting  what  the  appellant  had stated in  the letter and the cable. This unmistakably shows that the  respondent accepted the alteration as suggested by the appellant  in that  the arbitration agreement was deemed to have  been deleted  from the  sub-contract Ext  A. [910H; 911A-D]      4. If the truth of the facts stated in a document is in issue, mere  proof of  the handwriting  and execution of the document would  not furnish  evidence of  the truth  of  the facts or contents of the document. The truth or otherwise 902 of the  facts or  contents so stated would have to be proved by admissible evidence i.e. by the evidence of those persons who can  vouchsafe for  the truth  of the  facts  in  issue. [912B-C]      In the instant case the utter failure of the respondent to reply  to the  letter and  the  cable  controverting  the averments made  therein unmistakably  establish the truth of the averments made in the letter. [912E]      5. In  the facts  of  a  given  case  acceptance  of  a suggestion may  be sub silentio reinforced by the subsequent conduct. The  general rule  is that an offer is not accepted by mere  silence on  the part  of the  offeree.  There  may, however, be  further facts  which taken  together  with  the offeree’s silence constitute an acceptance. One such case is where a  part of  the offer  was disputed at the negotiation stage and the original offeree communicated that fact to the offerer showing that he understood the offer in a particular sense. This  communication will probably amount to a counter offer in  which case  it may  be that  mere silence  of  the original offerer will constitute his acceptance. [912G-H]      In the instant case, the conclusion is inescapable that there was  no concluded  arbitration agreement  between  the parties. [914E]      Halsburys Laws  of England 4th Edn. vol. 9 para 251, R. v. Fulhan,  Hammersmith and  Kensington  Rent  Tribunal,  ex parte Zerek,  [1951] 1 All E. R. 482, Davies v. Sweet (1962) 2 W.L.R. 525, referred to.      6.(i) The High Court totally overlooked and ignored the admission of  receipt of  letter and cable in paragraph 6 of the affidavit.  The High  Court attached  importance to  the denial of  the receipt  of the  letter and  the cable by the employee of  the respondent company in the oral evidence and did not  attach importance  to the subsequent admission that the manager  of respondent  company must have replied to the letter and the cable. Admission, unless explained, furnishes the best  evidence. The  High Court  overlooked the material evidence, drew  impermissible  inference  and  came  to  the conclusion which on evidence is found utterly unsustainable. [914G-H]      (ii) A  finding of  fact recorded  by  the  High  Court overlooking the  incontrovertible evidence  which points  to the contrary  and, therefore,  utterly unsustainable  cannot come in  the way of this Court reaching a correct conclusion on facts  and the  examination of the evidence by this Court cannot be  impeded by a mere submission that this Court does not interfere with finding of fact. [915A]      7. (i) Both the Courts practically overlooked the basic difference in  the approach  which the  Court will  have  to adopt if  the application  is to be treated under section 34

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of the  Arbitration Act,  1940, or  one  under  section  151 C.P.C. In  any event,  as the motion is at the discretion of the Court  and as  both the  parties have  led evidence, the burden of proof would assume secondary importance. [916F]      Michael Golodetz  & Ors. v. Serajuddin and Co. [1964] 1 S.C.R. 19, referred to.      (ii) It  is well settled that where the trial court has a discretion  in the  matter, the  appellate court would not ordinarily  substitute   its  discretion  in  place  of  the discretion exercised  by the trial court. It is equally well settled that  where the  trial court  ignoring the  relevant evidence, side tracking the 903 approach to be adopted in the matter and overlooking various relevant considerations,  has exercised  its discretion  one way, the  appellate court  keeping in  view the  fundamental principle can and ought to interfere because when it is said that a matter is within the discretion of the court it is to be  exercised   according  to   well  established   judicial principles, according  to reason  and  fair  play,  and  not according to whim and caprice. [917B-C]      Craies Statute Law 6th Edn. p. 273 R. v. Wilkes (770) 4 Barr 2527, referred to.      8. The  Single Judge  and the Division Bench completely overlooked the  well established principles in granting stay of suit in a case where reliance is placed upon a subsisting arbitration agreement. [917D]      9. When  parties  by  contract  agree  to  arrange  for settlement of  their disputes by a Judge of their choice, by procedure of arbitration voluntarily agreed upon, ordinarily the court  must hold  the parties  to their  bargain.  As  a corollary, if  a party to a subsisting arbitration agreement in breach  or violation of the agreement to refer dispute to arbitration approaches  the Court,  the Court would not lend its assistance  to such  a party  and by  staying  the  suit compel the  party in  breach to  abide by its contract. When the parties  have agreed  to an  arbitration  by  a  foreign arbitral tribunal  the case  for stay would be stronger than if there  was a  domestic arbitration agreement. However, it is not  an absolute rule. Granting or refusing to grant stay is still  a matter  within the  discretion of the court. How discretion would  be exercised  in a given case would depend upon various circumstances. [918D-F]      Bristol Corporation  v. John Aird & Co. [1913] A.C. 241 at 257  and Owners  of Cargo Ex "Athenee" v. Athenee Llyods’ List Law  Reports, Easter  Sittings 1922,  Vol. XI,  page 6, referred to.      In the  instant case  the entire  evidence both  of the appellant  and  the  respondent  is  in  this  country;  the contract as  a whole  was executed  and carried  out in this country; the  claim as  a whole  arose in  this country; the appellant is a company incorporated in this country; and the respondent is  having its  office in  this country; and that the respondent is not motivated by any principle to have the decision of  the foreign  arbitral tribunal at Paris but the principal object  of respondent  is merely  to make  it more difficult, if  not impossible,  for the  appellant to assert the claim. The other vital considerations are, that the cost of arbitration  at Paris  will be so disproportionately high to the  claim involved  in adjudication that one would never think of  incurring such a huge cost to realise such a small sum claimed,  and the  restriction on  the  availability  of foreign  exchange.   The  sum   total  of   all  these  well established circumstances  clearly indicate that the instant suit is  one in  which when  discretion is exercised on well

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settled judicial  considerations no  court would  grant stay and the stay has to be refused. [925B-D]      Michael Golodetz  & Ors.  v. Serajuddin  & Co. [1964] 1 S.C.R. 19,  Bristol Corporation  v. John  Aird &  Co. [1913] A.C. 241  at 257,  Owners of  Cargo Ex  "Athenee" v. Athenee Llyods’ List  Law Reports,  Easter Sittings  1922, Vol.  XI, page 6,  V/o  Tractoroexport,  Moscow  v.  M/s.  Tarapore  & Company and Anr. [1970] 3 S.C.R. 53 and The Fehmarn [1957] 2 All E.R. 707, referred to.      10.  Section   3  of   the  Arbitration  (Protocol  and Convention) Act,  1937 is  in pari materia with section 3 of the Foreign  Awards (Recognition and Enforcement) Act, 1961. Section 3  of the  1937 Act would only be attracted if there is a  submission pursuant  to an  agreement to  that effect. [928B-C] 904      In the  instant case  while there  is an  agreement  as contemplated by  First Schedule to the 1937 Act, there is no submission  made   in  pursuance   of  such  agreement  and, therefore the  application of  the respondent could not have been entertained under section 3 of the 1937 Act. [928D]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION : Civil Appeal Nos. 2407- 2408 of 1968.      From the  Judgment and  Order dated  1-12-1965  of  the Calcutta High Court in Appeal Nos. 110-111/64      P. K. Chatterjee and P. K. Mukherjee for the Appellant.      S. C.  Majumdar, Arvind  Kumar, S.  Dasgupta,  Mrs.  L. Arvind and Miss Karabi Banerji for the Respondent.      The Judgment of the Court was delivered by      DESAI, J.-Protracted,  time consuming, exasperating and atrociously expensive  court trials  impelled an alternative mode  of   resolution  of   disputes  between  the  parties: arbitrate-don’t  litigate.   Arbitration  being  a  mode  of resolution of  disputes by  a judge  of the  choice  of  the parties  was   considered  preferable   to  adjudication  of disputes by  court. If  expeditious, less expense resolution of disputes  by a judge of the choice of the parties was the consummation devoutly  to  be  wished  through  arbitration, experience shows  and this case illustrates that the hope is wholly belied  because in  the words  of Edmond Davis, J. in Price v. Milner, these may be disastrous proceedings.      A petty  labour contractor  in  search  of  its  labour charges in  a paltry  amount of Rs. 4,25,343.00 from a giant foreign  engineering  and  construction  company  which  had undertaken to  erect a  thermal power  station at Barauni in Bihar State  under a  contract dated February 27, 1960, with Bihar State Electricity Board, filed a suit in the year 1963 which stands  stayed without  the slightest progress for the last 17  years and  with end  nowhere  in  sight.  Plaintiff (appellant herein),  a private  limited  company,  a  labour contractor, entered  into a  sub-contract for  erecting  two complete radiation  type steam  boilers as  part of  Thermal power station  at Barauni, with the defendant Invest-Import, a Yugoslavia  based company which in turn had entered into a contract with  the Bihar State Electricity Board for setting up the  power station. Plaintiff sub-contractor, pursuant to the sub-contract  dated July 10, 1961, had to supply skilled labour, unskilled labour and apprentice labour, to carry out the erection  work  and  incidentally  to  do  other  things provided in the sub-contract. 905

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The contract  also provided for employing extra labour force as  well   as  carrying   out  extra   stipulated  job   for installation, substantial  alteration of  design etc. as and when desired  and  directed  by  the  principal  contractor, respondent herein. In carrying out the work undertaken under the sub-contract,  the plaintiff  claims that it carried out some extra  work for  which it  was entitled  to recover Rs. 70,000 from  the respondent.  There were  also other  claims made by  the appellant  which were not satisfied or met with by the  respondent with  the result that the appellant filed suit No.  1359/63 on  the original side of the High Court at Calcutta on  August 1, 1963, to recover Rs. 4,25,343.00 from the respondent. The split up of the total claim has been set out in  the particulars  appended to  para 16 of the plaint. The  appellant   also  annexed   sub-contract  between   the appellant and  the respondent as Annexure ’A’ to the plaint. On August  2, 1963,  on a  notice of motion taken out by the appellant, a  learned single judge of the High Court granted an ad interim ex parte injunction restraining the respondent from withdrawing  the money  due to  it from the Bihar State Electricity Board.      Pursuant to  service of  notice of  motion taken out by the appellant,  on August  8, 1963,  the respondent appeared through one  Ilija Kostantinovic,  Manager of the respondent company posted  at its  office at 36, Ganesh Chandra Avenue, Calcutta, and moved an application purporting to be under s. 151 of  the Code of Civil Procedure, contending, inter alia, that  the   sub-contract  between   the  appellant  and  the respondent  incorporates  an  agreement  to  refer  all  the disputes arising out of the sub-contract to arbitration and, therefore, the  suit should  be stayed.  The clause spelling out  agreement   to  refer   disputes  to   arbitration  was reproduced in the petition. It reads as under:           "Any mutual  disputes should  be settled in mutual      agreement,  however,  should  they  fail  to  reach  an      agreement in  the way,  both contracting parties accept      the   jurisdiction    of   the   Arbitration   by   the      International  Chamber   of  Commerce   in  Paris  with      application of Yogoslav materials and economical law".      After setting  out the  background of  disputes between the parties, it was alleged in the petition for stay that in the circumstances  set out  in the  petition,  disputes  and differences arose  between the  appellant and the respondent out of  or in respect of and/or relating to the sub-contract dated July 10, 1961, and in view of the subsisting agreement to refer disputes or differences arising under or out of the sub-contract between  the parties  to arbitration,  the suit filed by the appellant should be stayed. It was also averred that if  the provisions of Arbitration Act did not apply the Court should in 906 exercise of  its inherent jurisdiction injunct the plaintiff appellant from  proceeding with  the suit  instituted by it. There were further averments praying for vacating ad interim injunction granted  by the  High Court  which  are  no  more relevant. The  respondent annexed  to the  petition for stay the sub-contract between the parties dated July 10, 1961, as also  some   correspondence  that  had  ensued  between  the parties.      Appellant  filed  a  counter  affidavit  sworn  by  one Bhikhubhai  Gourishankar  Joshi  who  described  himself  as principal officer  and constituted attorney of the appellant company controverting  the averments  made by the respondent in the  petition seeking  stay of  the suit.  The  principal contention taken in the counter affidavit was that there was

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no concluded  agreement between the parties to refer all the disputes arising  out of  the sub-contract to arbitration as contended  for   and  on   behalf  of   the  respondent.  To substantiate this contention letter dated July 10, 1961, the very date on which the sub-contract was entered into between the appellant  and the  respondent,  sent  by  the  Managing Director of the appellant company as also a telegram sent by the same  person on  July 13,  1961,  were  annexed  to  the counter-affidavit.      Ilija Kostantinovic,  Manager of the respondent company at Calcutta  filed an  affidavit in rejoinder in which there are certain  averments which  go to  the root  of the matter and, therefore, they may better be extracted here. They read as under:           "5. With reference to the allegations contained in      paragraph 4  of the  said affidavit,  I  reiterate  the      statements contained  in paragraphs  3  and  4  of  the      petition and I deny all allegations, which are contrary      thereto and/or inconsistent therewith.           6.  With  further  reference  to  the  allegations      contained in  paragraph 4  of the said affidavit, I say      that after  entering into  the contract  dated July 10,      1961, and  after executing  the  same,  the  respondent      purported to send a letter to the petitioner seeking to      modify and/or  delete the  arbitration clause contained      in the contract dated July 10, 1961, and also purported      to send a cable to the petitioner. The petitioner never      agreed to  the  modification  and/or  deletion  of  the      arbitration clause as contained in the said contract or      to the  alleged arbitration  clause  suggested  by  the      respondent".      The petition  for  stay  was  set  down  for  recording evidence. One  Panich Stojan  son of  Nikola Panich, Project Manager,  Barauni   Thermal  Project,  an  employee  of  the respondent company was examined on behalf of the respondent. No. oral evidence was offered 907 on behalf  of the appellant. The learned single judge by his order dated  January 10,  1964, granted  the petition of the respondent and  stayed further proceedings in the suit filed by the  appellant. The  learned judge  also vacated  the  ad interim injunction granted in favour of the appellant.      The appellant  preferred two appeals being Civil Appeal No. 110/64  against the  order of  the learned  single judge granting stay  of the suit of the appellant and Civil Appeal No.  111/64  against  the  order  dated  February  6,  1964, vacating the  interim injunction  granted in  favour of  the appellant. A  Division Bench  of the  High Court disposed of both the  appeals by  a common  judgment dated  December  1, 1965, dismissing  both the  appeals.  While  dismissing  the appeals the  division bench  held that  there  was  a  valid subsisting arbitration  agreement between the parties and it was binding  on both  the parties. It was also held that the claims made  by the  appellant in  the suit arose out of the sub-contract  which   included  arbitration  agreement  and, therefore, the  plaintiff  must  be  bound  by  the  bargain undertaken by him. The contention of the appellant that even if there  was a  subsisting arbitration  agreement,  in  the facts and  circumstances of the case discretionary relief of granting stay  of suit  would cause irreparable hardship and deny justice to the appellant was negatived.      Appellant then  moved an  application for a certificate under 7  Article 133(1)(c)  of the  Constitution.  The  High Court was  of the  opinion  that  the  appeals  did  involve substantial questions  of law and the case was a fit one for

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appeal to  the  Supreme  Court  and  accordingly  granted  a certificate  under  Art.  133(1)(c).  Appellant  accordingly preferred these two appeals by certificate.      At the commencement of hearing of the appeals Mr. P. K. Chatterjee, learned  counsel who  appeared for the appellant stated that  by passage  of time  the prayer  for injunction restraining the  respondent from  recovering its  claim from Bihar State  Electricity Board  had become  infructuous  and accordingly Civil  Appeal No.  2408/68 which was against the order vacating  ad interim  injunction granted  by the  High Court and the dismissal of the appeal against that order was not pressed. Therefore, Civil Appeal No. 2408/68 would stand dismissed as having not been pressed.      Mr. Chatterjee  in support  of Civil Appeal No. 2407/68 canvassed four contentions before us. They are:      1.   There  is   no  concluded   arbitration  agreement           between the  parties to refer the disputes arising           out of  the sub-contract  dated July  10, 1961, to           arbitration and,  therefore, the  suit  cannot  be           stayed; 908      2.   Alternatively, even  if the  Court  comes  to  the           conclusion  that   there  is   such  a  subsisting           arbitration agreement  between the parties, prayer           for stay having been made under s. 151 of the Code           of Civil  Procedure and/or  under  s.  34  of  the           Arbitration Act,  1940, read  with s. 151, C.P.C.,           the  Court   should  not   enforce   it   in   its           discretionary  jurisdiction   in  the   facts  and           circumstances of  the case  as it  would result in           miscarriage of justice;      3.   In view of the provisions contained in Arbitration           (Protocol and  Convention) Act,  1937,  the  Court           could not  invoke its  inherent jurisdiction under           s. 151,  C.P.C. and  the  special  Act  would  not           assist the  respondent because the present case is           not covered by the provisions of the Act;      4.   This being  a foreign  arbitration, s.  34 of  the           Arbitration Act,  1940, is  not attracted  and the           Court would  have no jurisdiction to grant stay of           the suit filed by the appellant.      The first  contention is  that there  is  no  concluded arbitration agreement  between  the  parties  to  refer  the disputes arising  out of  the sub-contract  dated  July  10, 1961, to arbitration and in the absence of a mutually agreed arbitration agreement,  the respondent  is not entitled to a stay of  the suit  filed by the appellant either under s. 34 of the  Arbitration Act  or under  s. 34 read with s. 151 of the  Code  of  Civil  Procedure.  Undoubtedly,  sub-contract marked Ext.  A has been signed both by the Managing Director of the  appellant company and by one Mr. Petrovije on behalf of the  respondent company.  Third paragraph  of Art.  12 of sub-contract Ext.  A recites  an arbitration  agreement. The provision is  for a reference of disputes arising out of the sub-contract  to  foreign  arbitral  tribunal,  namely,  the International Chamber  of Commerce  in Paris.  Such a clause has always  been interpreted  to spell  out  an  arbitration agreement. Respondent  contends that admittedly the Managing Director of  the appellant  company has  signed sub-contract Ext. A  which incorporates  arbitration  agreement  and  the appellant accepted  the  same  and  entered  upon  the  work entrusted to  it under  Ext. A and, therefore, it is not now open to  it to  repudiate  a  part  of  the  contract  which provides for  reference of  disputes arising out of the sub- contract to  arbitration of  a  foreign  arbitral  tribunal.

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Appellant countered  by saying  that the  appellant accepted the principal  contract but  not the  agreement to refer the dispute to  foreign arbitral  tribunal and  that  there  are tell-tale circumstances  on record  which would convincingly establish that  the parties  were not ad idem with regard to arbitration clause in Ext. A. 909      To recall,  sub-contract  Ext.  A  was  signed  by  the parties in  Belgrade on  July 10, 1961. Managing Director of the appellant  was in Belgrade on that day. On that very day Managing  Director   sent  a  letter  from  Belgrade  itself addressed to the respondent at Belgrade, relevant portion of which may be extracted:      "10th July 1961           "I have  signed the  contract of  Barauni  Thermal      Power Station work with you.           I have  objected to  the clause of Arbitration put      in there  in  agreement  which  was  deleted  from  our      revised draft of agreement sent to you in advance.           Arbitration clause  will be  acceptable to  us  if      only arbitration  to be done in India, according to the      rules and regulations and procedure of our country". This letter  was handed in to the respondent on the same day on which  Ext. A  was signed and accepted by the parties and it would  imply that  it must  be  soon  after  the  signing ceremony was  over. Further,  the Managing  Director of  the appellant immediately on landing in Bombay on July 13, 1961, sent a cable to the respondent which reads as under:           "Reached safely  Bombay (stop)  Reference  to  our      letter of  10th July  1961 regarding Arbitration clause      to be deleted from the contract document". Three things  emerge from  a conjoint  reading of the letter and the  cable that before sub-contract Ext. A was signed by the parties  at Belgrade,  a  draft  of  the  intended  sub- contract was sent by the respondent to the appellant for its approval and  the Managing  Director of  the  appellant  had raised a  limited objection  to the  arbitration clause.  On behalf of the appellant it was suggested that there would be no objection to the arbitration clause if arbitration was to be done  in India.  But as  the original  draft submitted on behalf of  the respondent suggested arbitration by a foreign arbitral tribunal  stationed in Paris, the same was objected to on  behalf of the appellant and its amendment was sought. Undoubtedly, Managing  Director of  appellant signed  Ext. A which incorporated  the arbitration  agreement as  extracted herein-before. But  the letter referred to herein was handed in presumably soon after the signing ceremony of subcontract Ext. A was over and was followed by the cable which not only referred to  letter dated July 10, 1961, but also reiterated and repeated the objection to the arbitration clause. 910      At one stage of the proceeding the respondent adopted a position that neither the letter nor the cable were received by it  and they  are not  genuine documents.  The  appellate Bench of  the High  Court held that the letter and the cable were not  received by the respondent. This conclusion is not only contrary  to evidence on record but is reached in utter disregard of the admission of the Manager of the respondent. Ilija  Kostantinovic,  Manager  of  the  respondent  company stationed at  Calcutta filed  an affidavit in rejoinder. The admissions are  spelt out  in paragraphs  5  and  6  of  the affidavit which  are extracted  hereinabove. In para 6 it is in terms  admitted that  the appellant  purported to  send a letter to the respondent seeking to modify and/or delete the arbitration clause  contained in the contract dated July 10,

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1961.  and   also  purported  to  send  a  telegram  to  the respondent.  He   further  proceeded   to  state   that  the respondent never  agreed to the modification and/or deletion of  the   arbitration  clause.  This  unambiguous  admission unmistakably shows  that  the  letter  and  the  cable  were received by  the respondent.  Of course,  again at  a  later stage when  Panich Stojan, Project Manager of the respondent entered the  witness box  to give evidence in support of the application for stay he was asked at Question No. 13 whether he had  any knowledge about the letter sent by the appellant on  July  10,  1961,  relating  to  the  arbitration  clause contained in the agreement. The answer was that the deponent had not  received any  letter in his department. To question No. 16  about the  cable, the answer was that the respondent had not  received any  cable also. In cross-examination when he was  confronted with  the averments in paragraph 6 of the affidavit of  Ilija Kostantinovic,  a  nebulous  answer  was given that Mr. Kostantinovic must have replied to the letter and the telegram. And he admitted that Mr. Kostantinovic was the Manager  of the  branch office of the respondent company at Calcutta.  Now, one  employee, viz.,  the Manager  of the respondent company  stationed at  Calcutta in terms admitted the receipt  of the  letter and  the cable while the witness who claimed  to be  present at  the signing  ceremony of the sub-contract Ext.  A was  emphatic that  the cable  and  the letter were not received and gave an explanation with regard to the averments of the affidavit which only show that truth was otherwise. In the face of uncontroverted and unambiguous admission in  the affidavit of the Manager of the respondent company one  can without  fear of  contradiction assert that the letter  and the  cable were  received by the respondent. The letter  and the  cable would  show that  the arbitration agreement to  refer disputes  to a  foreign arbitral  in the draft was  not acceptable  to the appellant though the other terms  were   acceptable.  The   appellant  repudiated   the arbitration agreement  soon after  the agreement  was signed when the Managing 911 Director of  the appellant  was in  Belgrade  and  took  the follow  up   action  by  sending  a  cable  reiterating  and repeating the  objection immediately  after  his  return  to India.      Now, once  it is  admitted  and  established  that  the letter and  the  cable  were  received  by  the  respondent, ordinarily if  the contents  of the letter and cable are not acceptable  to   respondent,  a  reply  to  that  effect  is naturally expected.  Contention is  that respondent accepted the change  in arbitration  clause proposed by the appellant sub silentio  coupled with  the subsequent  conduct. It is a fact that  the respondent  did not write back saying that if the  arbitration   agreement  was   not  acceptable  to  the appellant the  sub-contract would  not be  acceptable  as  a whole to  the respondent.  On the contrary, after a specific objection only  with regard  to arbitration agreement in the sub-contract Ext. A by the appellant, the respondent allowed the appellant to proceed further with the implementation and execution of the subcontract, without controverting what the appellant had stated in the letter and the cable. This would unmistakably  show   that  the   respondent   accepted   the alteration  as  suggested  by  the  appellant  in  that  the arbitration agreement  was deemed  to have been deleted from the subcontract  Ext. A. Add to this the circumstance that a petty labour  contractor could  not have been expected to or was not likely to agree to arbitration by a foreign arbitral tribunal stationed  in Paris  because it would be beyond its

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reach to seek relief by arbitration in a foreign country.      Incidentally it  was urged by Mr. Majumdar that even if the court proceeds on the assumption that the letter and the cable were  received, it  is not  open to this Court to look into the  contents of  the letter  and the cable because the contents are  not proved  as the  Managing Director  of  the appellant company  who is supposed to have signed the letter and the  cable has neither entered the witness box nor filed his affidavit  proving the  contents thereof.  Reliance  was placed on  Judah v.  Isolyne Bose. In that case a letter and two telegrams  were tendered in evidence and it was observed that the  contents of  the letter  and the telegram were not the evidence  of the  facts stated  therein. The question in that case  was whether the testatrix was so seriously ill as would result  in impairment of her testamentary capacity. To substantiate  the  degree  of  illness,  a  letter  and  two telegrams written  by a nurse were tendered in evidence. The question was  whether in  the  absence  of  any  independent evidence about  the testamentary  capacity of  the testatrix the contents  of the  letter could be utilised to prove want of testamentary capacity. 912 Obviously, in these circumstances the Privy Council observed that the  fact that  a letter and two telegrams were sent by itself would  not prove  the truth  of the  contents of  the letter and, therefore, the contents of the letter bearing on the question  of lack  of testamentary capacity would not be substantive  evidence.   Undoubtedly,  mere   proof  of  the handwriting of  a document  would not tantamount to proof of all the contents or the facts stated in the document. If the truth of  the facts  stated in  a document  is in issue mere proof of the handwriting and execution of the document would not furnish  evidence of  the truth of the facts or contents of the  document. The  truth or  otherwise of  the facts  or contents so  stated would  have to  be proved  by admissible evidence, i.e.  by the  evidence of  those persons  who  can vouch safe  for the truth of the facts in issue. But in this case Bhikhubhai Gourishankar Joshi who filed an affidavit on behalf of the appellant has referred to the averments in the letter  and  the  cable.  He  is  a  principal  officer  and constituted attorney  of the  appellant  company.  Once  the receipt of  the letter  and the cable are admitted or proved coupled with  the fact that even after the dispute arose and before the suit was filed, in the correspondence that ensued between the  parties, the  respondent did not make any overt or covert  reference to  the arbitration agreement and utter failure of  the respondent  to reply  to the  letter and the cable  controverting   the  averments   made  therein  would unmistakably establish  the truth  of the  averments made in the letter.  What is  the effect of averments is a different question altogether  but  the  averments  contained  in  the letter and the cable are satisfactorily proved.      It was,  however, contended that once sub-contract Ext. A  was  admittedly  signed  and  executed  by  the  Managing Director of  the appellant  company, subsequent  attempt  on behalf of  the appellant to repudiate a part of the contract would be  of no avail and the court cannot give effect to it except  if   the  novatio  suggested  by  the  appellant  is unreservedly accepted  and agreed  to by  the respondent. In the facts  of a given case acceptance of a suggestion may be silentio reinforced  by the  subsequent conduct.  True it is that the  general rule  is that  an offer is not accepted by mere silence on the part of the offeree. There may, however, be further  facts which  taken together  with the  offeree’s silence constitute  an acceptance.  One such case is where a

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part of  the offer was disputed at the negotiation stage and the original  offeree communicated  that fact to the offerer showing that  he understood the offer in a particular sense. This communication  will probably  amount to a counter offer in which  case it  may be  that mere silence of the original offerer will  constitute his acceptance (see Halsbury’s Laws of England, 4th Edn., 913 Vol. 9, para 251). Where there is a mistake as to terms of a document as  in  this  case,  amendment  to  the  draft  was suggested and a counter offer was made, the signatory to the original contract  is not  estopped by  his  signature  from denying that  he intended  to make an offer in the terms set out in the document; to wit, the letter and the cable (Ibid. para 295).  It can,  therefore, be  stated  that  where  the contract is  in a  number of  parts it  is essential  to the validity of  the contract  that the contracting party should either have  assented to  or taken  to have  assented to the same thing  in the  same sense  or as  it is  sometimes put, there should  be consensus ad idem. And from this it follows that a  party may  be taken  to have  assented if  he has so conducted himself as to be estopped from denying that he has so assented (Ibid, para 288). Even apart from this, it would still be  open to the party contending novatio to prove that he had  not accepted a part of the original agreement though it has  signed the  agreement containing that part. It would in this connection be advantageous to refer to R. v. Fulhan, Hammersmith and  Kensington Rent  Tribunal, ex  parte Zerek, wherein an  oral agreement  was  entered  into  between  the landlord and  a tenant  for lease of unfurnished premises at weekly rent  of 35s.  The landlord  subsequently refused  to grant the  tenant possession  unless he  agreed to  hire his furniture to  the landlord  for one year at a rental of & 12 and to  execute a  document certifying, inter alia, that the letting was  a furnished  letting at  a rent of 35s. a week. The tenant  signed the document and entered into possession. Later the  tenant applied  to  a  rent  tribunal  to  fix  a reasonable rent  for the premises as an unfurnished dwelling house under  the Landlord  and Tenant  (Rent  Control)  Act, 1949. The  tribunal accepted  the tenant’s evidence that the premises were  originally let  unfurnished and  came to  the conclusion that  the document  signed by  the tenant did not constitute a  valid agreement  and did not modify or replace the earlier  oral agreement  and that  the premises were not bona fide  let furnished.  The tribunal  reduced the rent to 15s. a  week. On an application by the landlord for an order of certiorary,  motion for  certiorary was refused and in so doing the  subsequent written  agreement was ignored and the previous oral agreement was accepted as genuine and binding. It would,  therefore, be  inappropriate to  say that because the appellant  has signed the sub-contract, every part of it is accepted  by him even though there is convincing evidence pointing to  the contrary.  It was,  however,  said  that  a subsequent negotiation 914 or a  repudiation of  part of  the contract  cannot  in  any manner affect  the concluded  agreement. Reliance was placed on Davies v. Sweet the pertinent observation at p. 529 being as under:           "If  there  was  originally  a  concluded  bargain      between the  parties, this  could only be got rid of by      either (a)  a mutual agreement to call off the sale, or      (b) an  agreement for  a variation  of the terms of the      original contract.  The mere  fact that there have been      negotiations which  prove to  be abortive  and  do  not

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    result in an enforceable agreement does not destroy the      original contract: see Perry v. Suffields Ltd. (1916) 2      Ch. 187. C.A." If on the evidence in this case it can be held that the sub- contract Ext.  A was  concluded contract  in respect  of all clauses  of   it  including  the  arbitration  agreement,  a subsequent repudiation  of a  part of  it by  a party to the contract cannot  affect  the  concluded  agreement.  But  as clearly pointed  out hereinbefore an amendment was suggested to the  draft of the intended contract and immediately after the signing  ceremony a  letter pointing  out that  part  in respect of  which amendment  was sought  and not carried out was not  acceptable and  it was followed by a cable it would indicate that  the parties  were not  consensus ad idem with regard to a severable portion of contract and there was thus lack of  mutuality on the question of arbitration agreement. Therefore, the  conclusion is  inescapable that there was no concluded arbitration  agreement between  the  parties.  The High Court  rejected the contention of the appellant holding that when  the Managing Director of the appellant signed the contract at  Belgrade on  July 10,  1961,  the  sub-contract contained the  arbitration agreement  and his  signature was only less than half an inch away from the arbitration clause and that  he has  not entered  the witness  box and  offered himself for  cross-examination  and  that  the  respondent’s contention that  the letter  and the cable were not received appeared to be acceptable. The High Court totally overlooked and ignored  the admission of receipt of letter and cable in paragraph 6  of the  affidavit of  Ilija Kostantinovic.  The High Court  attached importance to the denial of the receipt of the letter and the cable by Mr. Panich Stojan in his oral evidence and  did not  attach importance  to his  subsequent admission that Mr. 915 utterly unsustainable.  A finding  of fact  recorded by  the High Court  overlooking the  incontrovertible evidence which points to the contrary and, therefore, utterly unsustainable cannot come  in the  way of  this Court  reaching a  correct conclusion on  facts and  the examination of the evidence by this Court  cannot be  impeded by  mere submission that this Court does not interfere with finding of fact.      Assuming we  are not  right in  reaching the conclusion that there  was no  concluded arbitration  agreement between the parties and that the concurrent finding of fact recorded by the  learned single  judge and  the division bench of the High Court  in Letters  Patent Appeal  are binding on us, we may now  examine the  contention of law whether in the facts and circumstances  of this  case the High Court was right in exercising its  discretion in  favour of  the respondent  by granting stay of the suit filed by the appellant.      If the  application for  stay filed  by the  respondent purported to  be under  s. 34  of the  Arbitration Act, by a catena of decisions it is well settled that granting of stay of the  suit is  within the  discretion of  the  Court.  The expression ’such  authority may  make an  order staying  the proceedings’  clearly   indicates  that   the  Court  has  a discretion whether  to grant the stay and thereby compel the parties to  abide by the contract or the Court may refuse to lend its assistance by undertaking to adjudicate the dispute by refusing  the stay.  If the  application is under s. 151, C.P.C., undoubtedly  the Court  will still have a discretion in exercise  of its  inherent jurisdiction  to grant stay of the suit  or refuse  the same  but the approach of the Court would be  different. If  s. 34 of the Arbitration Act, 1940, is attracted,  ordinarily the approach of the Court would be

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to see that people are held to their bargain. Therefore, the party who  in breach  of arbitration agreement institutes an action before  the Court,  the burden would be on such party to prove  why the stay should be refused. On the other hand, if  the  application  is  under  s.  151,  C.P.C.,  invoking inherent jurisdiction of the Court to grant stay, the burden will be  on the  party seeking  stay to  establish facts for exercise of  discretion in  favour of  such  party.  In  the present case respondent who moved an application for stay of suit instituted  by the  appellant founded  its request  for stay on  shifting sands  in that  at one stage it was stated that the application was under s. 34 of the Arbitration Act, at other  stage it  was stated  that it  was under  s.  151, C.P.C., and before us it was stated that it is under s. 3 of the Arbitration  (Protocol and  Convention)  Act,  1937,  or under the  Foreign Awards (Recognition and Enforcement) Act, 1961. In the notice of motion taken out for stay of the suit by the respondent 916 it was  stated that  the application purports to be under s. 151,  C.P.C.   There  is  no  reference  to  s.  34  of  the Arbitration Act, 1940, in the body of the petition or in the affidavit annexed  to the  petition. On the contrary, it was stated in  para 16  of the petition that if Arbitration Act, 1940 does not apply to the arbitration agreement relied upon by the respondent, the Court may in exercise of its inherent jurisdiction restrain the appellant from proceeding with the suit. Learned  single judge  appears  to  have  treated  the application to  be under  s.  34  of  the  Arbitration  Act, because in  the last  paragraph of  his order  he has stated that the  Arbitration Act  applies even  if the  arbitration agreement provides  for  reference  to  a  foreign  arbitral tribunal. So saying, stay was granted which would imply that the learned judge treated the application to be one under s. 34 of the Arbitration Act. While dealing with the contention of the  appellant that  in view of the fact that arbitration agreement  refers  to  arbitration  by  a  foreign  arbitral tribunal, Arbitration  Act,  1940,  is  not  attracted,  the Division Bench has assumed as was done in Michael Golodetz & Ors. v.  Serajuddin &  Co., that  the Arbitration Act, 1940, invests in  Court in  India with  authority to  stay a legal proceeding commenced  by a party to an 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 arbitral  tribunal. It  further. however,  held that even if s. 34 is not attracted, the Court can in exercise of the inherent  jurisdiction for  doing  justice  between  the parties, stay  further proceeding  of the  suit which  would imply that  the Court  exercised its  jurisdiction under  s. 151, C.P.C. Both the Courts practically overlooked the basic difference in  the approach  which the  Court will  have  to adopt if the application is to be treated under s. 34 of the Arbitration Act,  1940, or  one under  s. 151, C.P.C. In any event, as  the motion  is at the discretion of the Court and as both  the parties  have led evidence, the burden of proof would assume secondary importance.      The  important   question  is  whether  the  Court  was justified in  the facts  and circumstances  of the  case  in exercising its  discretion  in  favour  of  the  respondent. Before examining  this aspect,  a minor contention raised by Mr. Majumdar  that when  the  motion  is  addressed  to  the discretion of  the Court  and the  Court has  exercised  its discretion one  way, the  appellate Court  should be slow to interfere with  the discretionary  order and  substitute its own discretion  in place  of the  discretion  of  the  Court

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before which  the motion  was addressed  and as in this case both the learned single judge and the 917 appellate bench  have exercised  the discretion in favour of the  respondent,   in   exercise   of   its   extra-ordinary jurisdiction this  Court should not interfere with the same, may be  disposed of. It is well settled that where the trial court has  a discretion  in the  matter, the appellate court would not  ordinarily substitute  its discretion in place of the discretion  exercised by  the trial  court.  But  it  is equally well settled that where the trial court ignoring the relevant evidence,  side tracking the approach to be adopted in   the    matter   and    overlooking   various   relevant considerations, has  exercised its  discretion one  way, the appellate court  keeping in  view the  fundamental principle can and  ought to  interfere because  when it is said that a matter is  within the  discretion of  the court  it is to be exercised according to well established judicial principles, according to  reason and  fairplay, and not according to him and caprice.  ’Discretion’, said  Lord Mansfield  in  R.  v. Wilkes, ’when  applied to  a court  of justice,  means sound discretion guided  by law.  It must be governed by rule, not by humour;  it must  not be  arbitrary, vague, and fanciful, but legal and regular’ (see Craies on Statute Law, 6th End., p. 273).  In  the  course  of  this  judgment  we  would  be constrained to  point out that both the learned single judge and the  judges of  the Division Bench completely overlooked the well  established principles in granting stay of suit in a  case   where  reliance   is  placed   upon  a  subsisting arbitration agreement.      Mr.  Chatterjee,  learned  counsel  for  the  appellant deduced the  following circumstances  from the  evidence  on record which,  when properly  evaluated, would  unmistakably indicate that  this is  not a  fit case  in which  the Court should decline to adjudicate upon the dispute brought before it by granting stay in favour of the respondent:      (i)  The entire  main contract  including the  work  of           erecting the  boilers entrusted  to the  appellant           under the  sub-contract Ext.  A,  dated  July  10,           1961, was  executed and  carried out  in India and           the whole of the evidence both for and against the           appellant is in India;      (ii) The   amount   claimed   in   the   suit   is   so           disproportionately small  in relation  to the huge           cost of  arbitration to be held at Paris in France           that forcing  the appellant  to incur the costs to           realise a small sum would be denial of justice;      (iii)Restrictions on  availability of  foreign exchange           is a relevant consideration, a fact of which Court           can take judicial notice;      (iv) The  Court  should  not  lend  its  assistance  by           granting  the   stay  to   one  who   insists   on           arbitration not as a matter of 918           principle but  with a  view to thwarting, stiffing           or exhausting the other side;      (v)  In all  cases of arbitration by a foreign arbitral           tribunal there  is always  a rider that in case of           hardship or injustice Courts of the country of the           party being  forced  to  go  to  foreign  arbitral           tribunal will protect him. We would  analyse and  examine each one of the circumstances hereinabove  extracted   separately   and   evaluate   their cumulative impact on exercise of the judicial discretion one way or  the other.  While so  doing the  observations of the

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learned single  judge and  learned judges  of  the  Division Bench  in   granting  stay  of  suit  must  receive  serious consideration.      When  parties   by  contract   agree  to   arrange  for settlement of  their disputes by a judge of their choice, by procedure of arbitration voluntarily agreed upon, ordinarily the Court  must hold  the parties  to their  bargain.  As  a corollary, if  a party to a subsisting arbitration agreement in breach  or violation of the agreement to refer dispute to arbitration approaches  the Court,  the Court would not lend its assistance  to such  a party  and by  staying  the  suit compel the  party in  breach to  abide by its contract. When the parties  have agreed  to an  arbitration  by  a  foreign arbitral tribunal  the case  for stay would be stronger than if there was a domestic arbitration agreement. This proceeds on the  assumption that  parties not  only sought and agreed upon the  forum for  resolution of  dispute but also the law according to  which the  dispute would be resolved. However, this is  not an absolute rule. Granting or refusing to grant stay is  still a  matter within the discretion of the Court. How discretion  would be  exercised in  a given  case  would depend upon  various circumstances. But to grant stay of the suit is  still a  matter within the discretion of the Court. In Bristol  Corporation v.  John Aird  & Co.,  Moulton, L.J. observed as under:           "But, my  Lords, it  must be remembered that these      arbitration clauses must be taken to have been inserted      with due  regard to  the existing  law of the land, and      the law of the land as applicable to them is, as I have      said, that  it does  not prevent  the parties coming to      the Court,  but only  gives to  the Court  the power to      refuse its  assistance in  proper cases.  Therefore, to      say that  if we  refuse to  stay an  action we  are not      carrying out  the bargain  between the parties does not      fairly describe  the position.  We are carrying out the      bargain between the parties, 919      because that  bargain to  substitute for  the Courts of      the land  a domestic  tribunal was a bargain into which      was written, by reason of the existing legislation, the      condition that  it should only be enforced if the Court      thought it a proper case for its being so enforced". In Owners  of Cargo  Ex "Athenee"  v. Athenee,  the Court of Appeal affirmed  the extracted  passage from  Lord Moulton’s judgment. In  that  case  the  action  was  brought  by  the receivers of  a part  cargo of  onions, which it was alleged were damaged  in course of carriage from Alexandria to Hull, and the  President of  the Admirality  Division declined  to stay the  action. The  Court of  Appeal in the appeal at the instance of  the defendants  declined to  interfere with the order refusing  the stay  on the  ground that the balance of convenience  and   the  substantial   advantage  which   the plaintiffs have by suing in U.K. (and which they lose by not being able  to proceed  in rem  against this  ship) and many other advantages  such as  in respect  of proof  of loss,  a matter which  any commercial  tribunal would  wish should be decided, if possible, having regard to the evidence obtained at the  time by  inspection of  the vessel and so on, and in these circumstances  the arbitration  clause in the contract was not given effect to.      Reverting to  the  circumstances  relied  upon  by  the appellant which  are likely  to influence  the discretion of the Court,  the first  submission is  that the  whole of the principal contract including the subcontract was carried out in India and the whole of the evidence both of the appellant

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and the  respondent is  in India and that this is a relevant circumstance which  must  influence  the  judicial  verdict. Appellant has  itemised his  different claims in the plaint. Broadly stated, it claims payment for extra work, difference between  agreed   charges  and  the  revised  charges,  loss incurred on  account of  non-performance of  a part  of  the contract by  the respondent,  etc. In respect of most of the claims the  appellant will  have to examine the men incharge of the  work, strength  of labour  force supplied  by it and this evidence  would certainly  be in  India. Respondent had set  up   its  office   at  Calcutta  and  this  office  was functioning even  when the  suit was  instituted. Looking to the  various  heads  of  claim  by  the  appellant  and  the correspondence between  the parties  prior to the suit it is safe to  conclude that  the evidence of the respondent would also be  in India.  Of course,  as a remote possibility some highly placed  officers may  have  to  be  examined  by  the respondent who  may be  in Yugoslavia.  Mr. Majumdar learned counsel  for   the  respondents,  however,  urged  that  the respondent has closed its office and all the books and 920 relevant  documents   have  been   taken  to  Belgrade  and, therefore, it  is now  too late  in the  day to say that the evidence of  the respondent  is also  in India. The Court is required to  consider  the  situation  as  on  the  date  of institution of  the suit  and unquestionably  on the date of institution of  the suit  office of  the respondent  at  36, Ganesh Chandra  Avenue, Calcutta, was functioning and within 7-8 days  of the institution of the suit respondent appeared in the  suit through  Ilija Kostantinovic,  Manager  of  the respondent  stationed  at  Calcutta.  Neither  in  the  main petition for  stay nor  in the affidavit in rejoinder it was anywhere stated  that the evidence of the respondent was not in India.  It was,  however, urged  that nearly a decade has rolled by and that this Court should take into consideration the change  in circumstances  on account  of the  passage of time for which respondent is in no way responsible. Reliance was placed  on  Pasupuleti  Venkateswarlu  v.  The  Motor  & General Traders.  In that  case an action was brought by the landlord for  recovering possession of certain premises from the tenant.  When the  matter was pending in the High Court, evidence  was   tendered  to   point  out   that  since  the institution of  the action  in the  trial court the landlord has  recovered   another  accommodation   and  that  if  the subsequent development  is taken into consideration landlord has no  present need  of the  accommodation in possession of the tenant.  The High  Court admitted evidence on this point and took  into consideration  the fact that the landlord has since the  institution of  the suit  obtained possession  of another accommodation  and on  this finding  non-suited  the appellant. An  objection was taken on behalf of the landlord before this Court that the High Court was in error in taking into consideration subsequent events and this contention was negatived. In  the very nature of action for eviction on the ground of personal requirement, the Court has not only to be satisfied that  the requirement  was present  at the date of institution of the action but continued to exist at the time of decree  and has  to mould the decree accordingly. Even if subsequent events  as  have  a  bearing  on  the  contention canvassed  before   the  Court   have  to   be  taken   into consideration, there  is no  material on record to show that the respondent  has closed  its office  at Calcutta and that the documents  and books  of accounts  which may  have to be tendered in  evidence have  been taken  to Yugoslavia.  Save this, Mr.  Majumdar could  not controvert  the fact that the

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entire evidence  both of  the appellant  and the  respondent which may be relevant for resolution of the dispute involved in the  suit is  in this  country, India. In Athenee (supra) case the  fact that  the evidence was in U.K. was considered as very relevant consideration for refusal to stay the suit. In Michael 921 Golodetz &  Ors. (Supra)  the fact  that all the evidence of the parties  was in  India was  accepted by  this Court as a relevant consideration for refusing to stay the suit.      The next  circumstance relied  upon is that the cost of arbitration   to    be   held   at   Paris   would   be   so disproportionately high  to the  amount claimed  in the suit that forcing  the appellant  to go  to arbitration  would be denial of  justice. This  is self-evident.  The claim in the suit is Rs. 4,25,343. Now, just contemplate taking witnesses and books  of accounts  to Paris for leading evidence before the  International  Chamber  of  Commerce.  The  cost  would certainly be  disproportionately high.  One need not go into the mathematical  calculations for  this obvious  and  self- evident proposition.      The next  circumstances relied  upon is  restriction on availability   of    foreign   exchange    as   a   relevant consideration. If  witnesses are  required to  be  taken  to Paris, if  lawyers  are  to  be  engaged  in  Paris  and  if documents are  to be  sent to  Paris, all this would require foreign  exchange.   Foreign  exchange   is  a   scarce  and controlled commodity.  It can  be  obtained  for  prescribed purpose. Both in the case of Michael Golodetz (Supra) and in V/O Tractoroexport,  Moscow v.  M/s. Tarapore  & Company and Anr., this  Court held  that restriction  on availability of foreign exchange  is a  relevant consideration  which should enter into  judicial verdict  for exercising  the discretion one way  or the  other. The  High Court  in this  connection observed that  if the  Managing Director  of  the  appellant company could  obtain foreign exchange for going to Belgrade to sign the contract, why should it be assumed that he would not get  foreign exchange this time too to plead his cause - a cause  which owes  its existence  to the  grant of foreign exchange  in  1961  ?  This  casual  approach  is  none-too- convincing. Foreign exchange for a visit for few days cannot be equated  with heavy  requirement of  foreign exchange for engaging  counsel,   taking   witnesses   and   transporting documents from  India to Paris so as to substantiate a claim of Rs.  4,25,343. And  the judicial  approach is not whether the appellant  would get  necessary foreign exchange but the approach is  should this  valuable national asset of foreign exchange be  frittered away  for resolving  a  petty  matter which can be conveniently resolved even in this country.      The next  circumstance  canvassed  is  that  the  Court should not  lend its  assistance by granting the stay of the suit to  one who  insists on  arbitration not as a matter of principle  but   with  a  view  to  thwarting,  stifling  or exhausting the other side. Respondent insists that 922 by staying  the suit the appellant should be forced to go to arbitration if  it desires  to vindicate  its claim. Is this approach dictated  by some  principle or  was the respondent aware of  the fact  that looking to the quantum of claim the appellant would  not undertake  the hazardous  and expensive adventure of going to foreign arbitration tribunal stationed at Paris  and that  thereby the  respondent would be able to thwart or  stifle the claim of the appellant ? If the relief to be  granted is  discretionary, the approach of each party persuading the  Court to  exercise the discretion one way or

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the other  would be  a vital and relevant consideration. The respondent has  anyhow either  to appear before the Court in India  or   a  foreign   arbitral  tribunal  in  Paris.  The respondent  is   from  Yugoslavia.   Apart  from  this,  the respondent has  an office  at Calcutta  and the  responsible officer like  a  Manager  was  stationed  at  Calcutta.  The correspondence between  the parties prior to the institution of the  suit shows that the relevant documents were in India on the  basis of  which certain  replies were  given by  the respondent  to   the  claims   advanced  on  behalf  of  the appellant. But  once the  suit  was  filed,  the  respondent insists that  arbitration agreement  should  be  given  full effect. Having  regard to  all the circumstances of the case it appears crystal clear that the respondent is motivated to seek stay neither to vindicate any principle nor to hold the appellant to the bargain but to force the appellant to go to Paris incurring  disproportionately heavy cost or to give up the  claim.  In  Michael  Golodetz  (Supra)  the  fact  that arbitration in  New York  would proceed  ex parte was viewed with disfavour  and stay  was  refused.  Similarly,  in  The Rehman, the  principal object  of the  defendant was  not to achieve a  trial in Russia but merely make it more difficult to the  plaintiffs to  assert their  claim,  was  emphasised while refusing  stay. In such a situation if there are other weighty circumstances  which indicate  that the Court should not lend  its assistance  to the  respondent by  staying the suit, this  aspect of  the approach  of the respondent would reinforce the conclusion.      The next  circumstance urged is that even where parties have agreed  to refer a dispute to foreign arbitral tribunal it is  always subject  to a  rider  that  the  agreement  is subject to  the law  of the  land, viz.,  that it  does  not prevent the  parties from coming to the court but only gives to  the   Court  the  power  to  refuse  its  assistance  in appropriate cases.  And enforcing  the agreement  would work hardship  or   injustice,  the  Court  would  take  it  into consideration before  holding the  parties to their bargain. In The  Rehman, a  cargo was  loaded at  a Russian port by a Russian shipper on board 923 the Rehman, a ship owned by a German Company. The cargo was, by terms  of the  bill of  lading, shipped  in apparent good order and  condition and  was to be delivered at the port of London in  like order  and  condition.  The  plaintiffs,  an English company,  purchased the cargo and became the holders of the  bill of  lading, thereby agreeing to be bound by its terms, one  of which  was that  all questions  and  disputes should be  determined in  the U.S.S.R. At the Port of London the cargo  was discovered, according to the plaintiff, to be contaminated and  the damage  was surveyed.  The  plaintiffs issued a  writ claiming  against the  defendants damages for breach of  the contract evidenced by the bill of lading. The only matter for evidence, so far as the plaintiffs’ case was concerned, that  did not  arise in England was the condition of the  goods when  shipped, as  regards which  the bill  of lading  contained   the  statement   mentioned  above.   The defendants  moved   to  set  aside  the  writ  for  want  of jurisdiction on  the ground that by the contract the parties had agreed  that all  disputes arising  under it  should  be judged in  the U.S.S.R. and contended alternatively that all proceedings should  be stayed.  Willmer,  J.  in  Admirality Division, held  that where  there  is  a  provision  in  the contract providing  that disputes  are to  be referred  to a foreign  tribunal  prima  facie  the  court  will  stay  the proceedings  instituted   in  England   in  breach  of  such

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agreement and will only allow them to proceed when satisfied that it  is just  and proper to do so. That according to the Court was  the principle.  After further  holding  that  the matter is  in the  discretion of the Court, stay was refused on the  ground that the plaintiffs were persons domiciled in England, the claim arose in England, the damage sued for was discovered in  England, the  cargo was  surveyed in England, and the  damage was  ascertained after  the survey. The fact that the  entire evidence was in England was emphasised as a relevant consideration.  The Court  also observed  that from the correspondence  one is  left with the suspicion that the principal object  of the  defendants was  not to  achieve  a trial in  Russia, but  merely to  make it more difficult for the  plaintiffs   to  assert   their  claim.  On  all  these considerations stay  was  refused.  And  this  decision  was affirmed by  the Court  of Appeal  in The Rehman Denning, L. J., observed that the dispute is more closely connected with England than with Russia. We cannot resist the temptation to point out  that the  fact situation in the case before us is almost similar,  if not  identical, to the one in The Rehman (Supra).      The last  circumstance relied upon is that in all cases of arbitration  by a  foreign  arbitral  tribunal  there  is always a rider that in 924 case of  hardship or  injustice Courts of the country of the party being  forced to  go to foreign arbitral tribunal will protect him. Ordinarily, the Court where the cause of action has arisen  would try  to resolve the dispute brought before it from the cause of action arising out of its jurisdiction. If parties  have agreed  to another  mode of  resolution  of dispute, the Court may hold the parties to their bargain but when the  Court  is  deprived  of  the  jurisdiction  by  an agreement between  the parties  and if  the Court  is called upon to  enforce it,  the matter  will still  be within  the discretion  of   the  Court.   As  was   stated  in  Bristol Corporation (Supra)  case when  the Court refused to stay an action it  cannot be said that the Court is not carrying out the bargain between the parties because that does not fairly describe the position. The Court is carrying out the bargain between the  parties because  the bargain  to substitute for the Courts  of the land a domestic tribunal was bargain into which was  written, by  reason of  the existing legislation, the condition  that it  should only be enforced if the Court thought it a proper case for its being so enforced. And that is where  the discretion  of the  Court creeps  in. Further, Russel on Arbitration, 19th Edn., p. 194, neatly sums up the relevant considerations  for granting  or refusing  stay. It reads :           "The principles  established  by  the  authorities      can, I  think, be  summarised as  follows :  (1)  Where      plaintiffs sue  in England in breach of an agreement to      refer disputes  to a  foreign Court, and the defendants      apply for a stay, the English court, assuming the claim      to be  otherwise within  its jurisdiction, is not bound      to grant  a stay  but has a discretion whether to do so      or not.  (2) the  discretion  should  be  exercised  by      granting a stay unless strong cause for not doing so is      shown. (3)  The burden  of proving such strong cause is      on the plaintiffs. (4) In exercising its discretion the      court should take into account all the circumstances of      the particular  case. (5)  In particular,  but  without      prejudice to  (4), the  following matters,  where  they      arise, may  properly be regarded :- (a) In what country      the evidence on the issues of fact is situated, or more

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    readily available,  and  the  effect  of  that  on  the      relative convenience  and expense  of trial  as between      the English  and foreign courts. (b) Whether the law of      the foreign  court  applies  and,  if  so,  whether  it      differs from  English law in any material respects. (c)      With what  country either  party is  connected, and how      closely. (d)  Whether the  defendants genuinely  desire      trial in  the foreign  country,  or  are  only  seeking      procedural advantages. (e) Whether the plaintiffs would      be prejudiced  by having  to sue  in the  foreign court      because they  would: (i)  be deprived  of security  for      their 925      claim; (ii) be unable to enforce any judgment obtained;      (iii) be  faced  with  a  time-bar  not  applicable  in      England; or  (iv) for  political, racial,  religious or      other reasons be unlikely to get a fair trial".      To sum  up, the  entire evidence  both of the appellant and the  respondent is  in this  country; the  contract as a whole was  executed and  carried out  in this  country;  the claim as  a whole  arose in this country; the appellant is a company incorporated  in this  country and the respondent is having its  office in  this country; and that the respondent is not  motivated by  any principle  to have the decision of the foreign  arbitral tribunal  at Paris  but the  principal object  of   the  respondent  is  merely  to  make  it  more difficult, if  not impossible,  for the  appellant to assert the claim. Add to this two other vital considerations, viz., that  the   cost  of   arbitration  at   Paris  will  be  so disproportionately   high   to   the   claim   involved   in adjudication that  one would never think of incurring such a huge cost  to realise  such a  small sum  claimed,  and  the restriction on the availability of foreign exchange, another vital relevant  consideration. The  sum total  of all  these well established  circumstances clearly  indicate that  this was a  suit in  which when  discretion is  exercised on well settled judicial  considerations no  court would  grant stay and the stay has to be refused.      And now  to the  approach of the appellate Bench of the High Court relevant to the point. Says the Court :           "Here is  a contract solemnly entered into between      the appellant, an Indian company, and the respondent, a      Yugoslav company,  in aid  of another  contract entered      into between  the latter and the State of Bihar through      its Electricity  Board for  erection of a thermal power      station at  Barauni. What a valuable possession for the      nation such  thermal power station means is plain to be      seen. We  do not,  Yugoslavs do,  know the know-how, of      erecting a  thermal power  station. Hence they are here      on the  role of  collaborators to  help us make such an      invaluable  acquisition.   And  to  get  it  built  the      authorities  spare   from  their   none  too   adequate      resources  the   requisite  foreign  exchange  for  the      appellant’s managing  director, Lalbhai,  in  order  to      enable him  to proceed  to  Belgrade  with  a  view  to      signing the  contract, which  he  does,  his  signature      being "only  one centimetre  away" from  the contract’s      arbitration clause". Does it  call for  any comment or analysis that the division bench completely  misdirected  itself  while  examining  the question of  granting discretionary  relief one  way or  the other ? Does it disclose exercise 926 of discretion  on sound  judicial principles or the Court is carried away  by the  considerations wholly  extraneous  and

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irrelevant? Yugoslavs  did  not  undertake  construction  of thermal power  station actuated by any altruistic motive but guided by  sound business considerations. One who comes here to earn  by going  into  business  need  not  be  put  on  a pedestal. The  High Court  overlooked the global competition for obtaining  international  contracts  and  it  is  not  a philanthropic  motive.   The   extracted   passage   clearly indicates  an   approach  not  dictated  by  sound  judicial principles but considerations wholly extraneous to the issue under discussion.  It is  in these  circumstances that  this Court is  constrained to  interfere with  the  discretionary relief granted in this case.      The next  contention is  that in view of the provisions contained in  Arbitration  (Protocol  and  Convention)  Act, 1937, (‘1937 Act’ for short), the Court could not invoke its inherent jurisdiction  under s. 151, C.P.C., and the special Act would not assist the respondent because the present case is not  covered by  the provisions  of the Act. Mr. Majumdar urged that  the 1937  Act was  enacted to give effect to the protocol on  arbitration  clause  set  forth  in  the  First Schedule and  to the  convention on the execution of foreign arbitral awards  set forth  in the  Second Schedule as India was a  signatory to  the protocol.  Mr. Majumdar  urged that even if  the application for stay is not entertainable under s. 34  of the  Arbitration Act  on the ground that this is a foreign arbitration to which Arbitration Act, 1940, will not apply, nor  could he  invoke inherent  jurisdiction  of  the Court under  s. 151  of the Code of Civil Procedure, yet the application is  maintainable under  s. 3  of the  1937  Act. Section reads as under:           "3.  Notwithstanding  anything  contained  in  the      Arbitration Act  X of  1940, or  in the  Code of  Civil      Procedure, 1908,  if any  party to a submission made in      pursuance of  an agreement  to which  the Protocol  set      forth  in   the  First  Schedule  as  modified  by  the      reservation subject  to which  it was  signed by  India      applies, or  any person  claiming through or under him,      commences any legal proceeding in any court against any      other party  to the  submission or  any person claiming      through or under him in respect of any matter agreed to      be referred, any party to such legal proceeding may, at      any time  after appearance  and before filing a written      statement or taking any other steps in the proceedings,      apply to  the Court  to stay  the proceedings;  and the      Court  unless   satisfied   that   the   agreement   or      arbitration has  become inoperative  or cannot proceed,      or that  there is  not in  fact any dispute between the      parties  with   regard  to  the  matter  agreed  to  be      referred, shall make an order staying the proceedings". 927      India and  Yugoslavia have  ratified the  protocol. The question, however,  is whether  s. 3  is attracted  in  this case. The  important expression  in s. 3 to be noted is: "if any  party   to  a   submission  made  in  pursuance  of  an arbitration agreement to which the Protocol set forth in the First Schedule  as modified  by the  reservation subject  to which it  was signed  by  India  applies".  This  expression postulates an  agreement to  which the protocol set forth in the First Schedule as modified by the reservation subject to which it  was signed  by India applies and a submission made in  pursuance   of  such  agreement.  Now,  both  India  and Yugoslavia  have  ratified  the  protocol  modified  by  the reservation subject  to which it was signed by India. It may be assumed that arbitration agreement between the parties to this appeal  is governed  by the  1937 Act.  Section  3  is,

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however, not  attracted merely  where an  agreement  as  set forth in  the  First  Schedule  is  subsisting  between  the parties but  the next  step ought  to have been taken before proceedings can be stayed in exercise of the power conferred by s.  3, viz.,  submission made  in pursuance  of  such  an agreement. A  reference  to  s.  3  of  the  Foreign  Awards (Recognition &  Enforcement)  Act,  1961,  (’1961  Act’  for short), prior  to its  amendment by the Amending Act of 1973 and a  decision of  this Court  interpreting the expression: "if any  party to  a submission  made  in  pursuance  of  an agreement  to  which"  would  clearly  establish  that  mere existence of an agreement as envisaged by the First Schedule would not  attract s. 3 of the 1937 Act but it would only be attracted where  there is  a  submission  pursuant  to  that agreement. Section  3 of the 1961 Act prior to its amendment in 1973 read as under:           "3. Stay of proceedings in respect of matter to be      referred  to   arbitration:  Notwithstanding   anything      contained in  the Arbitration  Act X  of 1940 or in the      Code of  Civil Procedure,  1908,  if  any  party  to  a      submission made  in pursuance  of an agreement to which      the Convention  set forth  in the  Schedule applies, or      any person claiming through or under him, commences any      legal proceedings  in any Court against any other party      to the  submission or  any person  claiming through  or      under him  in  respect  of  any  matter  agreed  to  be      referred, any  party to  such legal  proceedings may at      any time  after appearance  or before  filing a written      statement or taking any other steps in the proceedings,      apply to  the Court  to stay  the proceedings  and  the      Court, unless  satisfied that the agreement is null and      void in-operative  or incapable  of being  performed or      that there  is not  in fact  any  dispute  between  the      parties  with  regards  to  the  matter  agreed  to  be      referred, shall make an order staying the proceedings". 928 This section  came in  for interpretation  in V/O  Tractoro- Export, Moscow. Interpreting this section this Court held as under:           "But in  the present case a suit is being tried in      the courts  of this  country  which,  for  the  reasons      already stated, cannot be stayed under section 3 of the      Act in  the absence  of an  actual  submission  of  the      disputes to  the arbitral  tribunal at  Moscow prior to      the institution of the suit"      Section 3  of 1937  Act is in pari materia with s. 3 of 1961 Act.  It, therefore, becomes crystal clear that s. 3 of the  1937  Act  would  only  be  attracted  if  there  is  a submission pursuant to an agreement to that effect. In fact, the decision in V/O Tractoro-export, Moscow, (Supra) made it necessary for  the Parliament to amend s. 3 of the 1961 Act. In this  case we  are concerned  with s.  3 of  the 1937 Act which is  not amended.  It must, therefore, receive the same interpretation which  an identical provision received at the hands of  this Court.  Viewed from  that angle, in this case while  there  is  an  agreement  as  contemplated  by  First Schedule to  1937  Act,  there  is  no  submission  made  in pursuance of  such agreement and, therefore, the application of the respondent could not have been entertained under s. 3 of the  1937 Act.  As far  as the 1961 Act is concerned, Mr. Majumdar conceded  that  Yugoslavia  has  not  ratified  the protocol  pursuant  to  which  1961  Act  was  enacted  and, therefore, the  respondent cannot  maintain its  application under s. 3 of the 1961 Act.      The last  submission is  that this being an arbitration

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agreement to refer a dispute to a foreign arbitral tribunal, s. 34  of the  Arbitration Act  would not  be applicable and hence the application of the respondent for stay of the suit is not  maintainable. It  is not  necessary to  examine this contention on  its merits  because we  have assumed  for the purpose of  this appeal  that s. 34 of the 1940 Act would be attracted even  where the agreement is to refer a dispute to a foreign arbitral tribunal.      Having examined  the matter from all angles it is clear that both the learned single judge and the division bench of the High Court were in error in granting stay of the suit in this matter and, therefore, Civil Appeal No. 2407 of 1968 is allowed and  the stay  of suit granted by the learned single judge and  affirmed by  the division  bench of  the Calcutta High Court  is vacated.  The suit should accordingly proceed further from the stage where it was stayed. As the suit is a very old one, we hope the trial court would give priority to it and  dispose it  of as  expeditiously  as  possible.  The appeal is allowed with costs throughout. N.V.K.    Appeal allowed. 929