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1948 DIGILAW 137 (CAL)

Bilasrai and Company v. Tolaram Nathmall

1948-07-23

body1948
JUDGMENT Sinha, J. - This is an application by Messrs, Bilasrai, & Co., a registered partnership firm, for an order that all proceedings in Suit No. 2019 of 1947 be stayed. The allegations made in support of the petition are as follows:-- By a contract in writing No. 1328 dated February 15, 1946, the Petitioners purchased from the Respondent Tolaram Nathmall 3,60,000 bags B. Twills at Rs. 64-6 per 100 bags, delivery in the months of July, August and September, 1946, at 1,20,000 bags per month. The contract contained the following arbitration clause: All matters, questions, disputes, differences and/or claims arising out of and/or concerning and/or in connection with and/or in consequence of or relating to this contract whether or not the obligations of either or both parties under this contract be subsisting at the time of such dispute and whether or not this contract has been terminated or purported to be terminated or completed shall be referred to the arbitration of the Bengal Chamber of Commerce under the rules of its Tribunal of Arbitration for the time being in force and according to such rules the arbitration shall be conducted The Respondent failed and neglected to deliver any goods under the contract. The Petitioners thereupon claimed from the Respondent Rs. 64,725 as damages for non-delivery. The Respondent having failed to pay the damages, the Petitioners referred the disputes to the arbitration of the Bengal Chamber of Commerce, During the pendency of the arbitration proceedings, on. July 23, 1947, the Respondent instituted the said Suit No. 2019 of 1947. 2. A copy of the plaint is annexed to the petition. 64,725 as damages for non-delivery. The Respondent having failed to pay the damages, the Petitioners referred the disputes to the arbitration of the Bengal Chamber of Commerce, During the pendency of the arbitration proceedings, on. July 23, 1947, the Respondent instituted the said Suit No. 2019 of 1947. 2. A copy of the plaint is annexed to the petition. The Respondent, who is the Plaintiff in the said suit claims therein the following reliefs: (a) Declaration that the contract No. 1328 dated February 15, 1946, was induced by fraud and misrepresentation and was and it void and not binding on the Plaintiff (paragraphs 1 to 5 of the plaint); (b) Discovery and account of the dealings of the Defendant with the goods mentioned in the plaint and of the profits made by the Defendant and payment of the amount found due (paragraph 6 of the plaint); (c) Alternatively, a declaration that there was in fact and in law no contract between the parties as alleged by the Defendant (paragraphs 7, 8, 9, 10 and 11 of the plaint); (d) In the further alternative: (i) construction, and determination of the terms and incidents of the contract; (ii) a declaration that there is no term in the contract nor any custom in the Calcutta Gunny Trade whereby the due dates of delivery of the goods under the contract stood automatically extended till actual delivery of the goods or reaching of amicable settlement (paragraph 12 of the plaint); (e) In the further alternative, a declaration that the contract was or has become void (paragraphs 13 and 14 of the plaint) ; (f) A decree adjudging bought and sold notes to be void and ordering them to be delivered up and cancelled. 3. The allegations on which the plaint has been filed may be summarised as follows: The Plaintiff employed the Defendant brokers for sale of 3,60,000 bags of B. Twills in the open market on account of the Plaintiff upon inter alia the following terms: (a) upon sale of goods the Defendant would as principals in their own name enter into contracts with the buyers as also with the Plaintiff as sellers; (b) the Defendant would be entitled to brokerage of per cent, by way of remuneration for such sale. 4. 4. On February 15, 1946, the Defendant represented to the Plaintiff that they had duly sold the goods on the Plaintiff's account to buyers in the open market and passed to the Plaintiff their sold note or Contract No. 1328. The Defendant also passed a corresponding bought note to themselves. 5. Upon the faith of and relying on the said representations the Plaintiff accepted the sold note and acted upon the same. The Plaintiff had discovered recently that the representation was untrue and the Defendant did not sell the said B. Twills on the Plaintiff's account in the open market. The Defendant made the said representation falsely and fraudulently well-knowing the same to be false. The Plaintiff submits that the contract between the parties was induced by fraud and misrepresentation and was and is void (paragraphs 1 to 5 of the plaint). The Plaintiff believes that the Defendant in the business of the said agency had wrongfully dealt with the goods on the Defendant's own account and thereby made secret profits. The Plaintiff, therefore, claims discovery of the dealings and secret profits (paragraph 7 of the plaint). Alternatively, the Plaintiff states that the Plaintiff and the Defendant never agreed to the same thing in the same sense. The notes provided for delivery during July to September, 1946. The Plaintiff understood that he agreed to a contract in which in case of non-delivery there would be no automatic extension of the due dates of delivery and that there was no custom in the Calcutta Gunny Trade whereby there would be such automatic extension. The Defendant, however, alleged that they understood and believed that by the said notes they were agreeing to a contract under which, in case of non-delivery, the due dates of delivery would stand automatically extended till actual delivery or making of an amicable settlement between the parties and that there was a custom in the Gunny Trade whereby there would be such automatic extension (paragraphs 8 to 11 of the plaint). In the further alternative it is submitted that the contract should be construed and it should be determined whether it was a term of the said contract that in case of non-delivery the due dates of delivery would be automatically extended as hereinbefore mentioned and whether such term was annexed to the contract by custom of the Calcutta Gunny Trade (paragraph 12 of the plaint). In the further alternative, it is submitted that the contract ceased to exist on the ground of frustration and became void on the expiry of the Jute Price Control Order because the Plaintiff entered into the contract upon the mutual expectation, assumption and belief that the Jute Price Control Order, 1945, would be kept in force by Ordinance or otherwise during the period of delivery and/or adjustment of right and liabilities of the parties under the contract. By reason of the fact that the said order was not extended as and from the 1st October, 1946, the contract was frustrated and became void. It is also stated in the alternative that the parties were under a mistake as to a matter of fact essential to the agreement, namely, the continuance and extension of the Jute Price Control Order and thereby the contract was void ab initio (paragraph 13 of the plaint). 6. It is obvious that most of the disputes raised in the plaint are covered by the arbitration-clause in the contract, if there was one between the parties. The question as to whether the contract was frustrated or not or whether the contract was void or not by reason of the facts stated in paragraph 13 of the plaint was gone into in Balabux's case 53 C. W. N 863 (1947). I need not, therefore, further discuss the question except to say that the said dispute is covered by the arbitration-clause in the contract, if there was a contract. 7. As regards the question whether there was a custom in the Calcutta Gunny Trade that in case of non-delivery the due dates of delivery would stand automatically extended is a question for the arbitrators to decide if there was a contract between the parties, even if the Plaintiff did not know of the custom that would not invalidate the contract. It was at best an unilateral mistake. Further the question about the existence and non-existence of the custom is to be decided by the arbitrators. Simply because one party alleges that there is such a custom which the other party does not admit, it cannot be said that the contract is void by reason of a mistake essential to the contract. A submission of disputes arising out of the contract includes disputes as to existence or non-existence of a custom affecting the contract. Simply because one party alleges that there is such a custom which the other party does not admit, it cannot be said that the contract is void by reason of a mistake essential to the contract. A submission of disputes arising out of the contract includes disputes as to existence or non-existence of a custom affecting the contract. [See Produce Brokers Co., Ltd. v. Olympia Oil & Coke Co., Ltd. (1916) I. A. C. 314, 328 (1915)]. The real question seems to be what were the terms of the agreement entered into between the parties. It is for the arbitrators to decide that question provided there was a contract between the parties. 8. The only question which requires consideration is whether the dispute raised in the plaint, namely, that Contract No. 1328 was induced by fraud and misrepresentation and was and is void is a dispute which the arbitrators have jurisdiction to decide. In order that I may make an order for stay I must hold: (a) that the Plaintiff is a party to an arbitration agreement with the Defendant; (b) that the suit involves disputes which were agreed to be referred to arbitration. 9. The question as to whether there was an arbitration agreement between the parties is obviously not a matter for the decision of the arbitrators. The Court must decide the question and on the decision of that question in the affirmative is based the jurisdiction of the Court to make an order for stay. 10. Contract No. 1328 contains an arbitration clause. If I hold there was a contract between the parties, I must hold there is an arbitration agreement between them. 11. The Plaintiff pleads that the contract was induced by fraud and misrepresentation. If the Plaintiff succeeds in proving the case pleaded, the contract is void ab initio including the arbitration agreement. For the purpose of an application under sec. 34, the Court can only consider the case as pleaded and framed. Even if the Court is of opinion that the case made is of doubtful value or has been ingeniously framed with a view to avoid a possible claim under the contract itself, it cannot stay the suit, unless the disputes raised are within the ambit of the arbitration clause [see Johurmull Parasram v. Louis Dreyfus & Co., 52 C. W. N. 137 (1947)]. 12. 12. It is, however, contended on behalf of the Respondent that on the allegations in the plaint it is admitted that the Respondent entered into Contract No. 1328 dated February 15, 1946. The sold note was accepted and acted upon by them. It is urged that the contract being admitted, the dispute, whether the contract has been or can be avoided on account of fraud and misrepresentation is one which falls within the wide scope of the arbitration clause in the contract. 13. In support of this contention reliance was placed on an unreported judgment of Mr. Justice Das dated September 1, 1947, in In the Matter of Suit No. 607 of 1947 and In the Matter of an arbitration agreement between Tolaram Nathmall v. Birla Manufacturing Co., Ltd. Unreported : In the matter of Suit No. 607 of 1947, decided the 1st September, 1947. Das, J., held on the facts of that case that "even if the substantive contract had come to an end by reason of being avoided for fraud and misrepresentation or for breach of condition, the arbitration clause still survived and might well be invoked." He also held that the arbitration clause in that case (which was similarly phrased as the arbitration-clause here) was "so expressed that it constituted an arbitration clause which was collateral to or even independent of the substantive stipulations of the contract." 14. Ordinarily a dispute as to whether a contract was induced by fraud or misrepresentation and is void ab initio is one which the arbitrators cannot decide. The jurisdiction of the arbitrators depends on the existence of the contract and the submission. The arbitrators cannot ordinarily decide a dispute as to whether they have jurisdiction to decide a particular issue. 15. In Heyman v. Darwins, Ltd. (1942) S. C. 356, Viscount Simon said as follows: If the dispute is whether the contract which contains the clause has ever been entered into at all, that issue cannot go to arbitration under the clause, for the party who denies that he has ever entered into a contract is thereby denying that he has ever joined in the submission, Similarly if one party to the alleged contract is contending that it is void ab initio (because, for example, the making of such a contract is illegal), the arbitration clause cannot operate, for on this view the clause itself is void (p. 366). 16. 16. Lord MacMillan says at pp. 370-371 as follows: If it appears that the dispute is whether there has ever been a binding contract between the parties, such dispute cannot be covered by an arbitration clause in the challenged contract. If there has never bean a contract at all, there has never been as part of it an agreement to arbitrate. The greater includes the less, Farther, a claim to set aside a contract on such grounds as fraud, duress or essential error cannot be the subject-matter of a reference under an arbitration clause in the contract sought to be set aside. 17. In Narsingh Prasad Boobna v. Dhunraj Mills I. L. R. 21 Pat. 544 at 566 (1942), Harries, C. J., said: It is clear that where an agreement is impeached on the ground of fraud, the Court should not stay proceedings but allow the Civil suit to proceed. 18. The arbitration clause in that case which is set out at p. 550 of the report was in very wide terms. 19. In Monro v. Bognor, Urban District Council (1915) 3 K. B. 167, the action was for damages for fraudulent representation and to have the contract declared void. An application made to stay the proceedings was dismissed. It was held that the action was not "upon or in relation to or in connection with the contract" within the meaning of the arbitration clause. 20. The parties may, however, agree that any dispute between the parties including a dispute whether a contract was vitiated or avoided by reason of fraud or mistake should be decided by the arbitrators themselves. 21. In Heyman v. Darwins, Ltd. (1942) A. C. 356, Lord Wright at p. 378 says; Repudiation of a contract is sometimes used as meaning that the defendant denies that there ever was a contract in the sense of an actual consensus ad idem. If that is the case, a submission of disputes under the contract never comes into operative existence any more than the contract to which it was to be ancillary. Short of this, one party, though not denying that there was the appearance of assent, might claim that the consent was vitiated by fraud or duress or mistake or illegality, and in that sense it is often said that he repudiates the contract. Short of this, one party, though not denying that there was the appearance of assent, might claim that the consent was vitiated by fraud or duress or mistake or illegality, and in that sense it is often said that he repudiates the contract. There, again, it would be a question of construction whether the collateral arbitration clause could be treated as severable and could be invoiced for settling such a dispute." and again at p. 384:--- Hence, if the question is whether the alleged contract was void for illegality, or, being voidable, was avoided because induced by fraud or misrepresentation, or on the ground of mistake, it depends on the terms of the submission whether the dispute falls within the arbitrator's jurisdiction, and again at p. 385:-- I see no objection to a submission of the question whether there ever was a contract at all, or whether if there was, it had been avoided or ended. Parties may submit to arbitration any or almost any question, and Lord Porter at p. 398:-- whether the contract itself is repudiated in the sense that its original existence or its binding force is challenged, e. g. where it is said that the parties never were ad idem, or where it is said that the contract is voidable ab initio (e. g. in cases of fraud, misrepresentation or mistake, and that it has been avoided, the parties are not bound by any contract and escape the obligation to perform any of its terms including the arbitration clause unless the provisions of that clause are wide enough to include the question of jurisdiction. Where, however, the existence of the contract is acknowledged but one of its terms is relied on as disentitling the claimant to recover, the arbitration clause is effective. 22. The Court would, however, require clear and unambiguous words in the arbitration clause in order to be able to come to the conclusion that a dispute on the decision of which the jurisdiction of the arbitrators depended, was intended by the parties to be referred to arbitration. The ousting of the jurisdiction of the ordinary Court of Law can only be done by clear and definite words and ordinarily the Court would lean against a construction conferring on the arbitrators jurisdiction to decide a dispute as to the existence or non-existence of their jurisdiction. 23. The ousting of the jurisdiction of the ordinary Court of Law can only be done by clear and definite words and ordinarily the Court would lean against a construction conferring on the arbitrators jurisdiction to decide a dispute as to the existence or non-existence of their jurisdiction. 23. The only question, therefore, seems to be whether the words of this particular clause are severable and are so wide that it can be said that the parties intended that if any dispute arose as to whether the contract was entered into or not or whether the contract was void ab initio or not, that dispute could be decided by the arbitrators. On a construction of the arbitration clause I am unable to say that such a dispute was intended to be left to the decision of the arbitrators. It is true that the arbitration clause is very wide but I would construe the clause as conferring on the arbitrators jurisdiction to decide questions arising on the basis that a contract had been entered into. I do not think it was at any time the intention of the parties that where the existence of a contract was challenged or the legality of the contract was assailed or where the contract was avoided on account of fraud or misrepresentation the parties intended that such a dispute should be referred to arbitration. No doubt the clause says that even if the contract was subsequently terminated and even if the rights and obligations of the parties under the contract were not subsisting by reason of such termination, the arbitrators can decide the disputes within the arbitration clause. But in my view, such disputes must arise on the footing of the existence of a valid contract between the parties some time or other. Where the formation of the contract was challenged, the dispute in my judgment does not come within the said arbitration clause. 24. Further, where the contract including the arbitration clause is challenged as having been induced by fraud or misrepresentation the arbitration agreement itself is assailed and it is not severable. The arbitrators whose jurisdiction to act as arbitrators is in dispute cannot decide whether the parties entered into the arbitration agreement or not. The existence of the arbitration agreement is an essential pre-condition to the jurisdiction of the arbitrators. The Plaintiffs' case is that the arbitration agreement itself is void. The arbitrators whose jurisdiction to act as arbitrators is in dispute cannot decide whether the parties entered into the arbitration agreement or not. The existence of the arbitration agreement is an essential pre-condition to the jurisdiction of the arbitrators. The Plaintiffs' case is that the arbitration agreement itself is void. That question has to be settled by the Court. 25. I think that the decision of Das, J., must be read in the light of the facts of that case and the disputes raised therein. 26. The facts in that case were that there was a contract for sale of Mesta upon certain terms and conditions. The sellers failed to deliver, whereupon the buyers referred the disputes to arbitration. The buyers claimed Rs. 14,500 as the difference between the contract rate and market rate on the date of breach. The sellers contended before the arbitrators that Mesta was jute and was governed by the Jute Price Control Order and as the controlled price of jute on the date of breach, was the same as contract rate, there could be no damages. The sellers filed a suit in this Court on inter alia the following allegations : (a) When the contract was made, it was known and assumed by the parties that "Mesta" was "jute" within the meaning of the Jute Price Control Order. (b) The contract was entered into on the footing and understanding and on the representation made by the Defendant who were buyers, that Mesta was included in "Jute." (c) The Defendant was contending that Mesta was not jute and was not governed by the Jute Price Control Order. 27. The Plaintiffs alleged that if it was held that Mesta was not jute or governed by Jute Price (Control) Order, then (i) the contract was and is void being entered into tinder a mutual mistake or misapprehension of their mutual rights and obligations (paragraph 22 of the Plaint). (ii) the contract was induced by fraud and misrepresentation and the Plaintiff avoided the same (paragraph 24 of the Plaint). 28. On an analysis of the pleadings, the learned Judge came to the conclusion that there was no proper pleading of a mistake which could avoid the contract. The mistake in the ultimate analysis was--whether the Jute Price Control Order applied to Mesta? 28. On an analysis of the pleadings, the learned Judge came to the conclusion that there was no proper pleading of a mistake which could avoid the contract. The mistake in the ultimate analysis was--whether the Jute Price Control Order applied to Mesta? Even if there was a mistake it was a mistake of law, and if there was any mistake of facts it was not a mistake as to the subject-matter of the contract but as to the quality thereof. Das, J., held that the Plaintiff in his pleading had not made a case of the contract being void ab initio on the ground of mistake. 29. It was further pleaded that the contract was induced by fraud and misrepresentation, "If it was held that the Defendant was not bound by the description of jute in the contract. 30. It will be noticed that in that case the contract was admitted and it was alleged that the Jute Price Control Order applied to Mesta. If there was a decision that the control order did apply to Mesta the Plaintiff was content and there was no avoidance of the contract. If, however, it was decided that the control order did not apply to Mesta, the Plaintiff would avoid the contract. The Plaintiff, therefore, wanted to disaffirm the contract only if the decision on a particular issue arising under the contract went against him. 31. The contract being admitted, and the real dispute between the parties being whether the Jute Control Order governed Mesta, that dispute was for the arbitrators to decide. The fraud and misrepresentation alleged did not seek to avoid the contract in all events but only in the event of a dispute between the parties being decided in a particular way. The substantial dispute, therefore, was "Did the Jute Control Order apply to the contract between the parties "? 32. I am inclined to think that what Das, J., meant was only this that having regard to the pleadings, the arbitration agreement was wide enough to entitle the arbitrators to decide the real and substantial dispute between the parties which was as I have already stated. 33. 32. I am inclined to think that what Das, J., meant was only this that having regard to the pleadings, the arbitration agreement was wide enough to entitle the arbitrators to decide the real and substantial dispute between the parties which was as I have already stated. 33. I am unable to assent to the broad proposition that in a case where it is admitted that a contract was entered into but it is said that the contract was so entered into by fraud, misrepresentation or coercion of the other party and the contract is avoided on that ground, the arbitration clause, though couched in wide terms such as we have here and occurring in the contract itself, would survive and give jurisdiction to the arbitrators to decide the question as to whether the contract was void. 34. The essential question seems to be (a) whether the plea taken, whether it is mistake, fraud, misrepresentation or coercion, make the contract containing the arbitration clause void ab initio so that the challenge is as to the formation of the contract or (b) whether the plea raises grounds for avoiding a contract validly entered into. If the latter, arbitration clause survives the avoidance or termination of the agreement. If the former, the arbitration-clause cannot operate. [See Chandanmull v. Clive Mills, Ltd. 52 C. W. N. 521, 547 (1947)]. 35. I, therefore, am unable to hold on the pleadings and affidavits. (a) that there was an arbitration agreement between the parties; (b) that the disputes raised in paragraphs 1-5 of the plaint were agreed to be referred to arbitration. Having regard to the facts and circumstances of this case, I do not think I would be justified in staying the suit. The disputes raised in paragraphs 1 to 5 of the plaint must be decided first. The other disputes raised in the plaint are covered by the arbitration clause if there was a contract between the parties. If it is held that there is a contract between the parties the suit will be stayed so that the arbitrators may decide the other disputes raised in the plaint.