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1947 DIGILAW 194 (CAL)

Johurmull Parasram v. Louis Dreyfus and Co. Ltd.

1947-11-18

body1947
JUDGMENT Harries, C.J. - This is an appeal from a decision of Clough, J., allowing an application for staying a suit. The facts have been stated at great length in the judgment of the learned Judge and it will only be necessary for me to state the salient facts. The Plaintiffs in the suit, who were the Respondents in this application were merchants carrying on business in Darbhanga in Bihar. The Defendants in the suit, who are applicants before Clough, J., were Messrs. Louis Dreyfus & Co. Ltd., who are well-known merchants and buyers carrying on business in Calcutta. 2. It is common ground that Messrs Louis Dreyfus & Co. made a contract with the Plaintiffs at Darbhanga for supply by the latter of one thousand tons of linseed oil at a certain price. The contract was entered into in the year 1945 and at that time linseed oil could not be taken out of the province of Bihar without a Government permit. It is clear that the Defendants in the suit undertook to obtain such permits. The necessary permits were obtained but there was great difficulty in obtaining railway wagons for carrying this linseed from Bihar to Calcutta. The time for performance of the contract was extended from time to time and eventually wagons sufficient to carry 330 tons of linseed oil were provided by the railway company and that quantity of linseed oil was delivered to the buyers, Messrs Louis Dreyfus & Co. 3. The Plaintiffs, the sellers, appear to have been very suspicious of the Defendants and eventually they alleged boldly that the Defendants had instigated the railway company not to provide wagons for the carriage of the remainder of the goods which had been purchased. The upshot of it all was that the sellers claimed that they were not bound by the contract and made monetary claims against the buyers. 4. In the contract which was entered into between the parties there was an arbitration clause in these terms:-- In the event of a dispute arising under this contract, the same shall be referred for settlement in Calcutta to the Tribunal of Arbitration of the Bengal Chamber of Commerce whose decisions, it is expressly agreed, shall be final and binding on 10th parties to this contract. 5. The buyers, Messrs. Louis Dreyfus and Company, acting under this arbitration clause, applied for arbitration. 5. The buyers, Messrs. Louis Dreyfus and Company, acting under this arbitration clause, applied for arbitration. The sellers, on the other hand, contended that the dispute which had arisen between the parties was not a dispute under the contract, and that the arbitration clause would have no reference to it. The sellers eventually filed a suit in this Court in which they claimed damages. The buyers, Messrs. Louis Dreyfus & Co., applied to this Court to stay the suit as the matter was one that should be decided by arbitration. Clough, J., eventually held that the dispute which was made the subject-matter of the suit was a dispute arising out of the contract; accordingly it was a dispute which could and had been properly referred to arbitration. In these circumstances he made an order staying the suit. 6. Mr. Banerji, on behalf of the Appellants--the Plaintiffs in the suit--has urged that the suit as framed could not possibly be stayed. He very rightly conceded that if the suit had been framed as a suit for relief arising out of the contract then much could have been said for the decision of the learned single Judge. His argument, however, was that the suit as pleaded was a suit entirely independent of the contract. He contended that the plains showed that the contract was not relied upon at all as the basis of claims made against the Defendants. 7. We have been taken very carefully through the plaint in this case and it appears to me that this case must be decided upon the allegations actually made in the plaint. 8. The Plaintiffs actually pleaded the contract entered into between themselves and Messrs. Louis Dreyfus & Company. But it was alleged that this contract had been wholly rescinded and wiped out for two distinct reasons. In the first place it is alleged in the plaint that the contract was frustrated and therefore it must be regarded as having been completely wiped out. That being so, no arbitration clause existed under which the matter could be referred to arbitration. What was pleaded was frustration as understood in Hirjee Mulji v. Cheong Yus Steamship Co. (1926) A.C. 497. 9. In the second place, it was alleged that the Plaintiff was induced to enter into this transaction by reason of the fraud of the Defendants and the particulars of fraud are set out. What was pleaded was frustration as understood in Hirjee Mulji v. Cheong Yus Steamship Co. (1926) A.C. 497. 9. In the second place, it was alleged that the Plaintiff was induced to enter into this transaction by reason of the fraud of the Defendants and the particulars of fraud are set out. It is alleged that on discovery of this fraud the Plaintiffs immediately avoided the contract and claimed for loss on the basis of this fraud. 10. It is clear from the plaint that no damages were claimed for a breach of contract or for failure to accept or a failure to provided wagons or such like. The claim for damages fall under two heads. There is a claim for damages for fraudulent misrepresentation and a further claim for the value of goods which were delivered to the Defendants. It is made clear that this latter head of claim is not a claim for price of goods and delivered under the contract, but it is really in the nature of a claim for a reasonable price for goods delivered to the Defendants at the latter's request. 11. There can be no doubt that this plaint was very carefully and, if I may say so, ingeniously framed with a view to avoiding any possible claim under the contract itself. It is made clear in the plaint that the contract which was entered into was completely wiped out and that the claim for the loss suffered is made on grounds other than breach of contract. 12. The learned single Judge realised that the claim as pleaded was not a claim under the contract, but he asked himself whether that was sufficient to enable him to hold that the suit should not be stayed. The learned Judge was of the view that he had to ascertain what in substance was the claim. His view was that in substance this was a claim for damages under the contract, though it was a claim very carefully camouflaged as a claim for damages for fraud and a money claim by way of quantum meruit as it is pleaded. 13. If a court is entitled to go into the question what was substantially the nature of this claim, then Clough, J.'s decision may well be right. But in my view a court is not entitled at this stage to go into such a question. 13. If a court is entitled to go into the question what was substantially the nature of this claim, then Clough, J.'s decision may well be right. But in my view a court is not entitled at this stage to go into such a question. The court must consider the suit as it is pleaded and framed. If it comes to a conclusion that such a suit as pleaded is a suit on the contract or arising out of the contract then the suit should be stayed. Bht on the other hand if the suit as pleaded is a suit independent of the contract then the Court has no power to stay the suit though it is satisfied that the frame of the suit is merely a means of avoiding the consequences of alleging the true nature of the claim. 14. It appears to me that the present case is completely governed by a case decided by two very eminent Lord Justices in the English Courts--Monroe v. Bognor Urban District Council (1915) 3 K.B.D. 167. In that case the Plaintiff, a contractor, entered into a written contract with the Defendants for the construction of certain sewerage works: the contract contained a clause that if at any time any question, dispute or difference, shall arise between the council or their engineer and the contractor upon or in relation to or in connection with the contract the matter shall be referred to and determined by the engineer. After the Plaintiff had done certain work under the contract the Plaintiff refused to complete the work alleging that he had been induced to enter into the contract by fraudulent misrepresentations made in the specification as to the nature of the subsoil of the ground where the work was to be done, and he brought an action to recover damages for the alleged misrepresentations and to have the contract declared void. The Defendants having taken out a summons under sec. 4 of the Arbitration Act, 1889, to stay the proceedings and refer the dispute to arbitration under the arbitration clause in the contract. It was held that the dispute was not a dispute upon or in relation to or in connection with the contract within the meaning of the arbitration clause and that the Defendants were not entitled to have the proceedings stayed. 15. It was held that the dispute was not a dispute upon or in relation to or in connection with the contract within the meaning of the arbitration clause and that the Defendants were not entitled to have the proceedings stayed. 15. In that case a learned Master had held that substantially the suit was based on the contract although it was pleaded as a suit for damages for fraud. The learned Lords Justices who decided the case held that it was immaterial what the suit was in substance. What had to be considered was the nature of the suit as pleaded. It seems clear that the learned Master in Chambers and the learned Judge in Chambers who heard the appeal from the Master were of opinion that these allegations of fraud were wholly without foundation and further the learned Judge in Chamber appears to have thought that the Plaintiff had clearly ratified the contract and could not possibly claim to avoid it on the ground of fraud. The learned Lords Justices however pointed out that those were matters which could be considered if an application was made to have the suit dismissed on the ground that it was frivolous or vexatious or disclosed no cause of action. They were not grounds upon which a court could stay a suit under the provisions of the Arbitration Act. It seems clear from the judgments of both the Lords Justices that they were very doubtful as to the merits of the Plaintiff's suit in that case, but nevertheless they held that as the suit had been pleaded it was a suit independent of the contract and that the arbitration clause in the contract could not possibly apply to it. In the circumstances they declined to stay the suit. 16. The contentions urged before Clough, J., were the contentions urged in support of the suit in Monroe's case (1915) 3 K.B.D. 167. But the English Courts refused stay on the ground that once the claim was pleaded as something entirely independent of the contract no arbitration clause in the contract could ever apply to such a suit. 17. Before us it has been urged that the allegation that this contract was frustrated clearly cannot be substantiated. The learned single Judge held that there was no question of frustration in this case and that any allegation of frustration was little short of frivolous. 17. Before us it has been urged that the allegation that this contract was frustrated clearly cannot be substantiated. The learned single Judge held that there was no question of frustration in this case and that any allegation of frustration was little short of frivolous. That may or may not be so. But can this Court go into the question in the present proceedings? There is an allegation that the contract was frustrated and therefore was completely wiped out. If it was then the arbitration clause was wiped out and the matter could not possibly be referred to arbitration. It is not for us at this stage to consider the merits or demerits of that plea of frustration. It is sufficient to hold that frustration having been pleaded the suit is taken, out of the ambit of the contract and must be based on entirely different grounds. 18. As I have said, the second allegation is of fraud; that is fraud inducing the Plaintiff to enter into the contract. The damages are claimed purely as damages for fraud coupled with a further claim for the value of goods delivered to the Defendants at the Defendants' request and not under the contract. 19. These pleas may be of very doubtful value, but it is not for this court at this stage to adjudicate upon, them. The Plaintiffs have seen fit to rely on these pleas and success or failure of this suit must depend upon whether they can establish these pleas or not. In this suit they cannot later turn round and ask the Court to give them damages or the price of the goods under the contract, because once the claim is made under the contract it is clearly one for arbitration. The Plaintiffs having seen fit to plead the claim in this manner must stand or fall on the claim as pleaded. 20. Another point was taken that in substance this is a suit for a declaration that the arbitration clause contained in the contract is no longer in existence and therefore is wholly ineffective. There can be no doubt that such a claim is impliedly made in this case, though there is no express claim for a declaration to that effect. Mr. Another point was taken that in substance this is a suit for a declaration that the arbitration clause contained in the contract is no longer in existence and therefore is wholly ineffective. There can be no doubt that such a claim is impliedly made in this case, though there is no express claim for a declaration to that effect. Mr. Banerji who argued this case very fully for the Appellants conceded that before he could succeed he would have to show that the contract and the arbitration clause contained in it had been somehow or other wiped out and were not binding on him. The contract as it was entered into clearly contained an arbitration clause and Mr. Banerji's present case involves a request to this court to hold that the arbitration clause is no longer in existence or has any binding effect. 21. It is urged that in substance therefore this is a suit which requests the court to decide upon the existence and effect or validity of an arbitration agreement or award and therefore is a suit which does not lie by reason of sec. 32 of the Arbitration Act, 1940. Where the existence, validity or effect of an arbitration agreement is sought to be challenged the proper method is an application under sec. 33 of the Act. What the argument amounts to is this that the present suit as framed does not lie. But is that a ground for asking for a stay? In Monroe's case (1915) 3 K.B.D. 167 it was urged that the suit as framed did not lie. But the learned Lords Justices pointed out, that if that was so the proper course was to apply to the Court to have the suit dismissed upon that ground. 22. I do not think it is open to this Court in the present proceedings to go into the question whether the suit as framed was maintainable or not. The only question that we have to consider is whether the suit as framed is within the ambit of the arbitration clause. 23. I do not hold that the suit as framed has any substance in it, nor do I hold that it is wholly without substance. That will be a matter for the Court hearing the suit itself on any application to have it dismissed as being frivolous or vexatious. 23. I do not hold that the suit as framed has any substance in it, nor do I hold that it is wholly without substance. That will be a matter for the Court hearing the suit itself on any application to have it dismissed as being frivolous or vexatious. Further, it is not for this Court to hold at this stage that the suit is or is not maintainable. They also will be a matter which the Court can decide on an appropriate application being made to it. 24. In my view, as the suit as framed is one for money claimed wholly independent of the contract, this Court has no power to stay it under sec. 34 of the Arbitration Act. The claim as framed is a claim not under the contract containing the arbitration clause, but is really a claim based on tort and an implied contract. That being so, the learned Judge was wrong in making an order staying the suit. 25. Mr. Banerji has contended that if this application for stay is dismissed this Court should make an order staying the arbitration proceedings. It appears to me that we are not in this case concerned with the arbitration proceedings at all. There is a prayer in the suit as framed for an injunction restraining the Defendants from proceeding with these arbitration proceedings. It will be open to the Plaintiffs, if they deem it proper, to move the Court for an ad interim order staying these proceedings. On the other hand, it will of course be open to the present Respondents to move the Court to dismiss this suit altogether on the grounds which have been put forward before us, namely that the suit is frivolous and vexatious and not maintainable according to law. 26. Before concluding I should like to refer to one argument which was addressed to us, namely, that as there were allegations of fraud in this case, the matter should be tried by a Court and not by an arbitrator. The case is Narsing Prasad Boobna v. Dhanraj Mills (1943) Pat. 53 was relied upon to support this contention. In that case I delivered judgment and followed the English decision of Russell v. Russell 42 L.T. 112 (1880). The case is Narsing Prasad Boobna v. Dhanraj Mills (1943) Pat. 53 was relied upon to support this contention. In that case I delivered judgment and followed the English decision of Russell v. Russell 42 L.T. 112 (1880). The Bench of which I was a member were of the view that where allegations of fraud are made against a person that person has a right to ask a Court to go into those allegations rather than an arbitrator and that in such a case a Court will refuse to stay a suit although the contract giving rise to the suit contains an arbitration clause. That class of cases to my mind has no relevance in the present case. The case of Narsing Prasad v. Dhanraj Mills (1943) Pat. 53 was a case in which a suit had been brought on the contract and the question arose whether or not it was a fit; case to be stayed under sec. 34 of the Arbitration Act. In the present case the point to be decided is entirely different. Here the suit is based on causes of action wholly apart from the contract and therefore entirely different considerations apply. That being so, this Patna Bench decision based upon English cases has no relevance at all in the recent dispute. In my judgment this is not a suit which can be stayed under sec. 34 of the Arbitration Act and that being so this appeal must be allowed. The decision of the learned single Judge is set aside and the application for stay dismissed. In the circumstances I would make no order as to costs in this Court or in the Court below. Mukherjee, J. I agree.