UNION OF INDIA v. Promode Kumar Agarwalla — 1967 DIGILAW 225 (CAL)

JUDGMENT 1. This is an appeal against an order by which S. K. Datta J. refused to stay an action under section 34 of the Arbitration Act. 2. On January 7, 1960, the appellant union of India, accepted a tender submitted by the respondent No. 1 for transporting, loading and unloading goods at or around Katihar. Under the contract, the respondent No. 1 was liable to make good any compensation, demurrage or other charges or expenses that might be incurred by the appellant on account of delays in loading or unloading of trucks and wagons unless the delay was for reasons beyond his control. The decision of the Officer-in-charge, Government of India Godowns, in that respect was to be final and binding on the contractor. Moreover, under the contract, the appellant had the right to reimburse itself from the security deposit for any damage or loss suffered or incurred by the appellant owing to the negligence or unworkmanlike performance of any of the services or breach of any of the terms of the contract on the part of the respondent no. 1. The contract contained an arbitration clause, the material portion of which provided as follows : - "all disputes and differences arising out of or in any way touching or concerning this agreement whatsoever, shall be referred to the sole arbitration of any person nominated by Secretary of the Ministry of the Government of India administratively dealing with the contract at the time of such nomination or if there be no Secretary, the administrative head of such Ministry at the time of such nomination. It will be no objection to any such appointment that the person appointed is a Government servant, that he does deal with the matters to which the agreement relates, and that in the course of his duties as such Government servant he had expressed views on all or any of the matters in dispute or difference. The award of such arbitrator shall be final and binding on the parties to this agreement. It is also a term of this agreement that no person other than person nominated by the Secretary or administrative head of the Ministry as aforesaid should act as Arbitrator and, if for any reason, that is not possible, the matter is not to be referred to arbitration at all. It is also a term of this agreement that no person other than person nominated by the Secretary or administrative head of the Ministry as aforesaid should act as Arbitrator and, if for any reason, that is not possible, the matter is not to be referred to arbitration at all. Subject as aforesaid, the Arbitration act, 1940 shall apply to the arbitration proceedings under this clause. " On June 1, 1965, the respondent no. 1 brought an action against the appellant and the respondent No. 2 one J. S. Narayana, Regional Director (Food), for recovery of Rs. 6,671. 92 P. payable under 22 bills in respect of works done under the contract and for refund of security deposit of Rs. 3,003/ -. In the plaint the respondent No. 1 contended that the monies due under those bills as also the security deposit became payable under the contract. Alternatively, the respondent No. 1 claimed that he lawfully paid to the appellant the security deposit and did the work covered by the bills not intending to do so gratuitously and the appellant enjoyed the benefit thereof. In the premises, he claimed that the appellant is bound to compensate him in respect of these monies. 3. It is also pleaded that should it be held that the contract is not enforceable against the appellant the agreement was entered into between the respondent No. 1 and the respondent no. 2 and the respondent No. 1 executed the work at the request of the respondent no. 2. The respondent No. 1 is entitled to claim refund of the security deposit and the value of the bills from the respondent No. 2. 4. In the application for stay of the action, the appellant contended that on divers occasions, the respondent No. 1 failed to supply adequate labour to unload grain bags in time as a result whereof the goods incurred demurrage in the total sum of Rs. 10,509/- which had to be paid by the appellant. In the circumstances, the appellant claimed that the respondent No. 1 is liable to reimburse the appellant in respect of the said sum which had to be incurred solely on account of default and breach of contract on the part of the respondent no. 1. The appellant contended that the payment of these bills as well as refund of security deposit have, therefore, been rightly withheld. 1. The appellant contended that the payment of these bills as well as refund of security deposit have, therefore, been rightly withheld. The appellant also claimed that all these disputes and differences arose out of and/or touching and/or concerning the contract and are covered by the arbitration agreement. In answer to the petition, the respondent No. 1 denied that any contract except as appears from the tender and the acceptance of tender was entered into between the parties or that the contract contained any arbitration clause. He disputed the claim of the appellant to be reimbursed in the sum of Rs. 10,509/- or any other sum in respect of demurrage or on any other account. He also denied that the action brought by him is in respect of any matter agreed to be referred to arbitration in terms of the arbitration agreement. The respondent No. 1 also resisted the application on other grounds :- (a) The appellant cannot lawfully dispute the claim which is the subject matter of the suit (b) The appellant has not yet taken any steps to refer the claim to arbitration. (c) The appellant is wrongfully withholding the dues of the respondent No. 1. (d) The arbitration proceedings will be lengthy and expensive. (e) The person to be nominated by the Secretary to the ministry, Government of India, administratively dealing with the contract at the time of the nomination is likely to be biassed in favour of the appellant and there is every likelihood of the alleged arbitration proceedings being abortive and useless. 5. The learned judge held that the arbitration clause though couched in a wide language does not bring within its ambit the claim under section 70 of the contract Act and in any event, the claim against the respondent No. 2 is not within the scope of the arbitration clause there can be therefore, at the most, a partial stay of the action only in respect of the claim under the contract. If the claim under the contract is decided by the arbitrator and the claim under section 70 of the Contract act, by the Court, there is possibility of a conflict of decisions. It is therefore preferable that the matter is disposed of by the Court. 6. The learned judge addressed himself to the question as to whether there is a binding contract between the parties. It is therefore preferable that the matter is disposed of by the Court. 6. The learned judge addressed himself to the question as to whether there is a binding contract between the parties. The draft agreement annexed to the tender contains a number of blanks. He adds that it may be contended that the blanks are not material. On that debatable ground, he says, the court should hesitate to refer the parties to arbitration. He also found that the contract may be open to the objection that the respondent No. 2 who accepted the tender on behalf of the president of India did not in accordance with the provisions of the Constitution indicate his authority by the use of the words 'for and on behalf of the Union of India'. Moreover, he was of the view that the provision in the arbitration clause, that it will be no 'objection to the appointment of an arbitrator that he is a Government servant, that he had to deal with the matter to which the agreement relates and that in course of his duties as such Government servant he has expressed views on all or any of the matters of dispute or difference, is prima facie contrary to natural justice. The contention that the draft agreement annexed to the tender contains some blanks and therefore any contract entered into on the basis of such draft agreement is not a concluded contract, may be shortly disposed of. It does not appear from the plaint or the affidavit of the respondent No. 1 that he had any difficulty in construing the contract because of those blanks. The respondent No. 1 well understood how the blanks were to be read. It is not the case of the respondent No. 1 in the plaint, that there was no concluded contract between the parties. In fact, in paragraph 5 of the plaint, it is stated that in answer to an invitation to tender the respondent No. 1 submitted a tender which was duly accepted by the respondent No. 2 on behalf of the president of India and the contrast was entered into at Calcutta within the jurisdiction of this Court. In fact, in paragraph 5 of the plaint, it is stated that in answer to an invitation to tender the respondent No. 1 submitted a tender which was duly accepted by the respondent No. 2 on behalf of the president of India and the contrast was entered into at Calcutta within the jurisdiction of this Court. The other objection that the respondent No. 2 did not in accordance with the provisions of the Constitution indicate his authority to enter into the contract on behalf of the President of India may also be disposed of on the ground that the acceptance of the tender by the letter of 7th January, 1980 by the respondent no. 2 was expressed to have been made in the name of the President and the. time for performance of the contract was extended by the letter of 2nd January 1961 by him for and on behalf of the President. The letters by which the rates were sanctioned were not signed on behalf of the President. Sanction of rates however is only ancillary to the contract. The tender having been accepted for and on behalf of the president, it is a matter of no consequence that sanction was not accorded to the rates in the name of the President. Moreover, nowhere has it been alleged or even suggested by the respondent No. 1 that the contract is not enforceable by reason of non-compliance with Article 299 of the Constitution. If that were the respondent's case, he would not have pleaded in the plaint that the contract was duly entered into and he would not have sought to enforce the contract. In any event, the objection is of no substance. 7. The respondent No. 1 does not dispute that he entered into a contract with the appellant but he contends that he was not a party to any arbitration agreement. The basis of the contention is that the tender which was accepted by the appellant provided that the successful tenderer would be required. to sign a draft agreement which was annexed to the tender in which the terms and conditions of the contract were specified. The arbitration agreement is one of those terms. The draft agreement was not signed by the respondent No. 1, and therefore, he claims, that he is not a party to the arbitration agreement. 8. to sign a draft agreement which was annexed to the tender in which the terms and conditions of the contract were specified. The arbitration agreement is one of those terms. The draft agreement was not signed by the respondent No. 1, and therefore, he claims, that he is not a party to the arbitration agreement. 8. The Invitation, to Tender provides that the terms and conditions which will govern the tender are to be found in the draft agreement annexed to the tender. The tender was invited and submitted and accepted on the basis of the terms of the draft agreement. In the tender itself the respondent No. 1 declared that he had examined the terms and conditions given in the tender and its annexures and agreed to abide by them. The draft agreement is one of the annexures. In these circumstances, it must be held that the terms and conditions specified in the draft agreement, one of which is the arbitration agreement, govern the contract, and the respondent No. 1 is therefore a party to the arbitration agreement. It is contended that in so far as the plaintiff's claim, in the alternative, is a claim under section 70 of the contract Act, it is not covered by the arbitration clause and therefore, the dispute out of which the claim arises, is not referable to arbitration. 9. In our opinion, merely by pleading that the claim arises under quantum meruit or under section 70 of the Contract act, a party cannot avoid arbitration. In (1) A. M. Mair and Co. v. Gordhandas Sagarmull A. I. R. 1951 S. C. 9 it was held that if a party has to take recourse to the contract to establish the claim, the dispute in respect of which the claim arises is a dispute under or arising out of the contract. 10. IN (2) Woolf v. Collis Removal service 1947 All. E. R. (2) 260, the plaintiff alleged that the defendant had contracted to remove his furniture to their store at a certain place and that in breach of the contract, they had removed the goods to a different destination where some of them were lost and others damaged. 10. IN (2) Woolf v. Collis Removal service 1947 All. E. R. (2) 260, the plaintiff alleged that the defendant had contracted to remove his furniture to their store at a certain place and that in breach of the contract, they had removed the goods to a different destination where some of them were lost and others damaged. The plaintiff alleged, in the alternative, that the goods were lost and damaged owing to the negligence of the defendants in storing the goods in the other place, which was an unsuitable place in which to store them. The contract contained an arbitration clause. The defendant applied for a stay of the action. The claim therefore arose under the contract, and in the alternative, in tort. It was contended that as the claim was also in tort, the arbitration agreement which was a term of the contract was not attracted to the claim. In disposing of the objection, Asquith L. J. in delivering the judgment of the Court of Appeal said : "claims which are entirely unrelated to the transaction covered by the contract would no doubt be excluded; but we are of opinion that, even if the claim in negligence is not a claim under the contract, yet, there is a sufficiently close connection between that claim and that transaction to bring the claim within, the arbitration clause even though framed technically in tort. " In (3) Government of Gibralter v. Kenney and aw. (1965) 3 All. E. R. 22 the defendant had been employed by the plaintiff as a quantity surveyor under an agreement which specified the remuneration which he was to receive. The contract provided that if any dispute or difference should occur between the parties in relation to anything arising out of or under the agreement it should be referred to arbitration. Disputes arose concerning the defendant's remuneration. The disputed matters in the items of claim included a claim by the defendant for a sum of money on a quantum meruit for services rendered, it being alleged that the agreement had ceased to have any application to those services. There was an alternative claim under quantum meruit. It was held that in the circumstances of the case, the claim under quantum meruit, was a claim arising out; of the agreement, and was within the ambit of the arbitration clause. 11. There was an alternative claim under quantum meruit. It was held that in the circumstances of the case, the claim under quantum meruit, was a claim arising out; of the agreement, and was within the ambit of the arbitration clause. 11. Here it is pleaded that the plaintiffs' bills are payable and the security is refundable by the appellant under the contract. It is also pleaded that alternatively the claim is under section 70 of the Contract Act. It is further pleaded that should it be held that the contract was not entered into between the plaintiff and the respondent no. 1, the contract was entered into between the plaintiff and the defendant No. 2 and the plaintiff paid the security deposit and executed the works, at the request of the defendant no. 2. 12. The contract contains an arbitration clause. In so far as the claim is ex-contractu, the claim is clearly within the ambit of the arbitration clause. In so far as the claim is under section 70, the transactions out of which the claim arises were entered into by reason of the contract and are referable to the contract. In any event, there is a sufficiently close connection between the claim under section 70 and the transactions covered by the contract to bring the claim within the arbitration clause though the claim is technically preferred under section 70 of the Contract act. On precedents, as also under general principles, the claim under section 70 is within the scope of the arbitration clause. As for the claim against the defendant No. 2, it appears from the plaint that the claim is clearly under an alleged contract between the plaintiff and the respondent No. 2 and not under section 70 of the Contract Act. The claim against the defendant No. 2 is therefore, referable to arbitration. 13. It is contended that the provision that it will be no objection to any appointment that the person appointed will be a Government servant, that he has dealt with matters to which the agreement relates, and in the course of his duties, has expressed views on all or any of the matters in dispute or difference, is a provision which the court ought not to enforce. 14. 14. In (4) Eckersley v. The Mersey docks and Harbour Board 1894-2 QBD 667 it was held that the rule which applies to a judge or other person holding judicial office - namely, that he ought not to hear cases in which he might be suspected of a bias in favour of one of the parties does not apply to an arbitrator, named in a contract to whom both the parties have agreed to refer disputes which may arise between them under it. In order to justify the court in saying that such an arbitrator is disqualified from acting, circumstances must be shown to exist which establish at least, a probability that he will in fact be biassed in favour of one of the parties in giving his decision. The case was recently relied on in a Division bench judgment of this Court in (5) B. K. Dhar v. Union of India, AIR 1965 Cal. 424 . In (6) Ives and Barker v. Williams (1894) 2 Ch. 478-it was held that an arbitration clause referring disputes to the engineer of one of the parties cannot be disregarded on the ground that the engineer is in substance a judge in his own cause, unless there is sufficient reason to suspect that he will act unfairly. 15. In (6) Satyendra Nath Mitra v. Union of India, A. I. R. 1962 Cal. 177 it was held by this court that it cannot be said that a Government official acting in a judicial capacity will be biassed in favour of the Government merely because he is a Government employee. The same view has also been taken by the Bombay High Court in the case of (7) Government of India v. Chottolal chhaganlal, A. I. R. 1949 Bom. 359. 16. It cannot be said that only because the sole arbitrator is to be nominated by the Secretary, Government of India and he might be a Government servant, the Court ought to conclude that he will, or is likely. to act with bias. The question then arises whether the arbitrator nominated by the Secretary is disqualified from acting as arbitrator because he has dealt with the matter to which the agreement relates or because in the course of his duties he has expressed views on all or any of the disputes. to act with bias. The question then arises whether the arbitrator nominated by the Secretary is disqualified from acting as arbitrator because he has dealt with the matter to which the agreement relates or because in the course of his duties he has expressed views on all or any of the disputes. In my opinion, it cannot be laid down as a general principle of law that only by reason of such a provision in the arbitration clause an arbitrator will be disqualified from acting as an arbitrator. If the arbitrator has an open mind, he is expected to be open to persuasion and decide the Case having due regard to arguments and the merits of the case. If however he is so personally involved in the matter that it is not desirable that he should arbitrate in the dispute-a question which has to be decided on the facts and circumstances of each case-the court in the exercise of its discretion, will refuse to stay the action. In (8) Bristol Corporation v. John Aird and co. 1913 A. C. 229 Lord Atkinson said : "if a contractor chooses to enter into a contract binding him to submit the disputes which necessarily arise, to a great extent between him and the engineer of the person with whom he contracts, to the arbitrament of that engineer, then he must be held to his contract. Whether it be wise or unwise, prudent or the contrary, he has stipulated that a person who is a servant of the person with whom he contracts shall be the judge to decide upon matters upon which necessarily that arbitrator has, himself formed opinions. But though the contractor is bound by the contract, still he has a right to demand that, notwithstanding these preformed views of the engineer, that gentleman shall listen to argument and determine the matter submitted to him as fairly as he can as an honest man; and if it be shown in fact that there is any reasonable prospect that he will be so biassed as to be likely not to decide fairly upon those matters, then the contractor is allowed to escape from the bargain and to have the matters in dispute tried by one of the ordinary tribunals of the land. But i think he has more than that right. But i think he has more than that right. If, without, any fault of his own, the engineer has put himself in such a position that it is not fitting or decorous or proper that he should act as arbitrator in any one or more of those disputes, the contractor has the right to appeal to a Court of Law and they are entitled to say, in answer to an application to the court to exercise the discretion which rthe 4th section of the Arbitration Act vests in them-"we are not satisfied that there is not some reason for not submitting this question to the arbitrator. " 17. In (9) Union of India v. Coromondal engineering Co. AIR 1965 Mad. 488 , the Additional Chief Engineer was made the sole arbitrator under the arbitration clause. The clause provided that the previous knowledge of the arbitrator, in his capacity as Government servant, of the facts of the case was not to deter the arbitration clause from having full effect. It transpired that he had special knowledge of the contract upon the facts relating to its attempted performance because of certain negotiations between the parties prior to the application for stay. The plaintiff contended that the special knowledge of the arbitrator of the facts of the case led to a reasonable apprehension of bias in the arbitrator. The court refused to stay the action for other reasons. The learned Chief Justice however observed "if there is a well-founded apprehension of bias on the part of the arbitrator because of his knowledge of the special facts or the role he has played in any negotiations pending the litigation, that would certainly constitute a legitimate justification for avoidance of the clause. It will be a question of fact whether such apprehension is well-founded and such bias, or reasonable probability of it, may be inferred. " 18. In (10) U. P. Co-operative federation v. Sunder Bros., AIR 1967 s. C. 249 the appellant society entered into an agreement with the respondent by which they were appointed as managing agents for carrying on the business of the society as public carrier. " 18. In (10) U. P. Co-operative federation v. Sunder Bros., AIR 1967 s. C. 249 the appellant society entered into an agreement with the respondent by which they were appointed as managing agents for carrying on the business of the society as public carrier. The contract provided "in the event of there being any dispute regarding the terms and conditions of this agreement and the appellant's appointment as managing agents or any matter arising from and relating thereto or the subject-matter thereof, such dispute was to be decided by arbitration as provided under co-operative Societies Act of 1912. " the agreement was made on March 2, 1954 and was to last for a period of 3 years. On July 5, 1954, the appellant terminated the agreement. The respondents therefore brought a suit praying for a declaration that the termination of the managing agency agreement by the appellant was illegal and they were entitled to continue the business of managing agents under the terms and conditions of the agreement. They also prayed for a mandatory injunction restraining the appellant from terminating the agreement. The appellant applied under section 34 of the Arbitration Act for stay of the action. In the application, it was contended that the suit was not maintainable because under section 51 of the Co-operative Societies Act, the dispute was to be adjudicated upon by the Registrar of Co-operative Societies or in the alternative, the dispute was to be referred to arbitration in accordance with the Co-operative societies Act. Rule 115 framed under the co-operative Societies Act provided that the dispute was to be decided either by the Registrar or by arbitration and for that purpose to be referred in writing to the Registrar. Another rule provided that the Registrar on receipt of a reference was to decide the dispute himself or refer it for decision to an arbitrator or to two joint arbitrators appointed by him or to three arbitrators, of whom one was to be nominated by each of the parties in dispute and the third by the Registrar who was to appoint one of the arbitrators to act as chairman. One of the grounds on which the Supreme Court refused to stay the suit was the fact that the registrar was the Chief Controlling and supervising Officer of the appellant society under its by-laws. 19. One of the grounds on which the Supreme Court refused to stay the suit was the fact that the registrar was the Chief Controlling and supervising Officer of the appellant society under its by-laws. 19. In delivering the judgment of the Court, Ramaswamy J. said :- "an order of stay of suit under sec. 34 of the Indian Arbitration Act will not be granted if it can be shown that there is good ground for apprehending that the arbitrator will not act fairly in the matter or that it is for some reason improper that he should arbitrate in the dispute between the parties. It is, of course, the normal duty of the Court to hold the parties to the contract and to make them present their disputes to the forum of their choice but an order to stay the legal proceedings in a court of law will not be granted if it is shown that there is good ground for apprehending that the arbitrator will not act fairly in the matter or that it is for some reason improper that he should arbitrate in the dispute. " 20. The learned judge relied on the decision of the House of Lords in Bristol corporation v. John Aird and Co. and said : "it is obvious that a party may be released from the bargain if he can show that the selected arbitrator is likely to show bias or there is sufficient reason to suspect that he will act unfairly or that he has been guilty of continued unreasonable conduct. As we have already stated, the respondent has alleged in the present case that the registrar, Co-operative Societies has approved the termination of the contract of Managing Agency with the plaintiff and the Registrar was the chairman of the defendant-society. We are accordingly of the opinion that the High Court properly exercised its discretion under sec. 34 of the Indian Arbitration Act in not granting a stay of the proceedings in the suit. " In the Supreme Court case, the registrar, who was the controlling and supervising officer of the appellant society, was inevitably personally involved in the termination of the managing agency agreement with the respondent. Under any of the three possible procedures under the arbitration clause by which the dispute was to be decided, the Registrar had a dominant role to play. Under any of the three possible procedures under the arbitration clause by which the dispute was to be decided, the Registrar had a dominant role to play. He was to decide the dispute himself, or to appoint a sole arbitrator or to appoint two out of three arbitrators, of whom one of his nominees was to act as the chairman. In those circumstances, the apprehensions of the respondent that the arbitrators were likely to be biassed was justified. In the present case, the arbitrator is not a persona designata. The arbitration clause provides that the secretary to the Government of India, transport Department is to nominate the arbitrator. It is nobody's case that the secretary has any personal interest in the matter. He is only the head of the department in the ministry and in any case he is not going to act as the arbitrator himself. He has only to nominate an arbitrator. He has not yet nominated any. Under the arbitration clause, the arbitrator need not even be a Government servant. He may be a stranger who has nothing to do with the subject-matter of the dispute. In these circumstances, there can be no legitimate apprehension of partiality on the part of the respondent before the Secretary nominates the arbitrator. 21. In the Supreme Court case the president of the appellant society had, under the statutory rules, identified himself with the appellant society. In the present case, it cannot be said that the Secretary, Government of India, has identified himself or has become involved in the subject-matter of the dispute in such a manner as to make it undesirable or improper for him to nominate a sole arbitrator. 22. If the arbitrator nominated by the Secretary happens to be a person in respect of whom the respondent No. 1 because of his antecedents or his involvement in the dispute come to entertain justifiable apprehensions, he can always come to court and apply for a stay of the action under section 24 on proper material. Having regard to the wide range of possibilities in the selection of an arbitrator by the Secretary in the present case, the apprehension of the respondents is premature. Having regard to the wide range of possibilities in the selection of an arbitrator by the Secretary in the present case, the apprehension of the respondents is premature. In our opinion, the Court therefore ought not to refuse to stay the suit, as at present advised, on a mere chance of bias on the part of a prospective arbitrator, who is not only not a persona designata, but whose antecedents cannot be predicted. Learned counsel for the respondent contended that the appellant's defence is one of set-off in respect of demurrage and the dispute which has arisen in consequence thereof is not a dispute covered by the arbitration clause. He relied on the decision of the supreme Court in (11) Union of India v. Birla, Cotton Spinning and Weaving Mills ltd. A. I. R. 1968 S. C. 688. In that case, the defendant refused to pay the plaintiff's claim not because the claim was in dispute but on the ground that a certain amount was due to the defendant under another contract between the parties. There was nothing in the contract in suit under which the defendant was entitled to claim a set-off in respect of monies which might become due to the defendant under a separate contract. En those circumstances, the Court refused to stay the action. 23. In the present case, the defendant claims to withhold payment of the plaintiff's bills and refund of security deposit on the ground that demurrage charges exceeding the plaintiff's claim in suit has become due to the respondent under clause 5 Part IA (c) and clause 5 Part III (c) of the present contract. The Supreme Court case has, therefore, no application to the facts of this case. 24. It was also contended that having regard to the sub-clause that any claim for demurrage by the appellant is to be decided by the Officer-in-charge, Government of India Godowns, and their decision was to be final, the claim for demurrage is outside the scope of the arbitration clause. In our opinion, this argument is of no substance. It is certainly for the arbitrator acting under the arbitration clause to decide whether the Officer-in-charge, Government of India, Godowns, has decided the claim for demurrage in terms of the contract. It cannot, therefore, be said that the claim for demurrage is not within the scope of the arbitration clause. In our opinion, this argument is of no substance. It is certainly for the arbitrator acting under the arbitration clause to decide whether the Officer-in-charge, Government of India, Godowns, has decided the claim for demurrage in terms of the contract. It cannot, therefore, be said that the claim for demurrage is not within the scope of the arbitration clause. It is said that if stay is granted and the disputes are now referred to arbitration, the claim will be barred by limitation and the Court therefore ought to refuse to stay the suit. In (12) Tona Jute Co. Ltd. v. Bilas Roy and co. (Suit No, 8 of 1955) Bachawat, J. refused to stay the suit and observed : "I have also taken into account the fact that if arbitration proceedings are commenced now, the claim will be barred by limitation. " In (13) Union of India v. Sitaram Sankarlal (Matter No. 6 of 1964) S. P. Mitra J. following the judgment of Bachawat, J. said "in any event it would be improper to compel the respondent to go to arbitration at this stage inasmuch as the respondent may be faced with the possibility of his claim being held to be barred by limitation. " in (14) Shalimar Paints v. Omprakash air 1967 Cal. 372 A. N. Sen J. relied on these precedents and expressed the view that it cannot be contended to be the absolute principle of law, that whenever there is any possibility of the claim being barred, the Court should refuse to exercise its discretion to stay the suit, but the possibility of a claim being barred if referred to arbitration on stay of the suit, is a relevant and material consideration in exercising the discretion conferred on the Court under section 34 of the Arbitration Act. Whether such a possibility amounts to a sufficient reason for refusing to stay the suit, is a question which depends on the facts of each case. ". The learned judge came to the conclusion that the plaintiff did not file the suit at a late stage with any intention of defeating the provisions of the arbitration clause and therefore, the consideration that the plaintiff's claim will be barred, if the suit is stayed and the disputes have to be referred to arbitration, constitutes a sufficient reason for refusing to exercise the discretion in favour of the applicant. 25. 25. The question raised in these cases is a question of great importance. More often than not, by the time an application under section 34 of the arbitration Act and almost always an appeal from an order made on such an application, is disposed of, the claim if referred to arbitration, is barred by limitation for no fault or laches of either party. It cannot be contended that a party acts malafide if he brings an action in a Court, only because there is an arbitration agreement. An arbitration agreement does not oust the jurisdiction of the Court. If a party has a right to institute a suit, he has also the right to institute it at any time before the expiry of the period of limitation. The defendant may also in good faith rely on the arbitration agreement, he may have been ready and willing, at all material times to do all things necessary for the proper conduct of arbitration. The application may be finally decided, as it often is, after the period of limitation expires. If the time taken up in prosecuting the suit cannot be excluded in computing the period of limitation, the Court, in the interest of justice, will have to refuse to stay the suit in a very large number of cases, especially where appeals are preferred. Otherwise the plaintiff will be left without a remedy because his claim will be barred before the arbitrator. To do so, however, will be to render for all practical purposes, section 84 nugatory. Not to do so, that is to say, to stay the suit and refer the plaintiff to arbitration with the sure knowledge that his claim will be held to be barred will be to deny justice and to deter people from entering into arbitration agreements at all. 26. It cannot be said, that a party is trying to defeat an arbitration clause, just because he institutes the suit at a late stage. Moreover, it will be difficult, shall I say well-nigh impossible for the court to decide whether a suit is filed at a late stage bonafide or with the object of defeating the arbitration agreement. Section 3 of the Limitation Act does not, in terms apply to arbitration. Prior to 1940, when the Arbitration Act came into force, there was nothing in and statute under which the law of limitation applied to arbitration proceedings. Section 3 of the Limitation Act does not, in terms apply to arbitration. Prior to 1940, when the Arbitration Act came into force, there was nothing in and statute under which the law of limitation applied to arbitration proceedings. In (15) Ramdutt Ramkissendas v. E. D. Sassoon and Co. AIR 1929 p. C. 103 an arbitration proved abortive, the Judicial Committee having held that the arbitrator had no jurisdiction to arbitrate; thereafter the claim was referred to second arbitrators. If the limitation Act was to apply to the claim in the proceedings before the arbitrators, the claim was barred. The question arose whether the defence of limitation could be raised in arbitration, and if so whether the claim was barred. The High Court held that the proceedings before the second arbitrators were a continuance of the first arbitration and as the proceedings had commenced before the first arbitrators within the period of limitation, the claim was not barred in any event. 27. On appeal, the Judicial Committee held that although the Limitation act does not in terms apply to arbitration, it is an implied term of contract that every defence which would have been open in a Court of law can be equally proposed for the arbitrator's decision unless the parties have agreed to exclude that defence. 28. Their Lordships also held that the second arbitration was not a continuance of the first. Therefore, it became necessary to decide whether the claim was barred in the second arbitration. In delivering the judgment of their Lordships, Lord Salvesen endorsed these observations of Greaves, J. "it is urged that having regard to the wording of Sec. 14 of the Limitation Act, this section cannot apply. This argument, however, does not seem to me to be well founded. If limitation, as I think it does, applies in arbitration proceedings the law of limitation applicable is that laid down in the Limitation Act, 1908, which is expressed to apply to suite, appeals and certain applications to courts. If, therefore, this Act is to be applied to arbitration proceedings notwithstanding the words above referred to, I see no reason why S. 14 of the Act should not apply. If it is said that the wording of the section is not apposite to arbitration proceedings it could equally be said that the wording of the Act itself is not apposite. If it is said that the wording of the section is not apposite to arbitration proceedings it could equally be said that the wording of the Act itself is not apposite. In my view, therefore, in computing the period of limitation the time occupied in the proceedings which ended in the decision of the Judicial Committee is to be excluded. " On those principles their Lordships held that section 14 of the Limitation act was applicable and the claim was not barred by limitation. The Judicial Committee decided the case of (15) Ramdutt Ramkissendaa v. E. D. Sassoon and Co. before the arbitration Act, 1940 came into existence. Section 37 (1) of the Act provides that all the provisions of the Indian limitation Act 1908 shall apply to arbitrations as they apply to proceedings in Court. Therefore, by operation of section 8 of the General Clauses Act, all the provisions of the Limitation Act 1963 apply to arbitrations. The text of section 14 is not apposite to arbitration proceedings, but having regard to Sec. 37 (1) of the Arbitration Act, Section 14 ought to be construed in the manner in which the Judicial Committee construed it so as to make it applicable to arbitration. 29. In my judgment section 14 of the Limitation Act is applicable to arbitration. In the context of arbitration proceedings initiated after a suit has been stayed under section 34 of the arbitration Act, the section should be construed to mean that in computing the period of limitation in proceedings before an arbitrator the time during which the plaintiff has been prosecuting with due diligence another civil proceeding whether in a Court of first instance or in a Court of Appeal against the defendant shall be excluded, where the proceeding is founded upon the same cause of action and is prosecuted in good faith in a Court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it. 30. A suit, which is stayed under sec. 34, is a suit which the court is unable to entertain not from defect of jurisdiction but from a cause of like nature. The jurisdiction of the Court is not ousted by the arbitration agreement but the Court by reason of the arbitration agreement, refuses to exercise its jurisdiction. 30. A suit, which is stayed under sec. 34, is a suit which the court is unable to entertain not from defect of jurisdiction but from a cause of like nature. The jurisdiction of the Court is not ousted by the arbitration agreement but the Court by reason of the arbitration agreement, refuses to exercise its jurisdiction. If section 14 of the Limitation act applies to arbitration, the question whether a claim before the arbitrator is barred or is likely to be barred, cannot be a relevant consideration in exercising discretion under sec. 34 of the Arbitration Act. In a proper case the time spent in prosecuting the suit will be excluded and it will be for the arbitrator to decide whether such time ought to be excluded under sec. 14 of the Limitation Act just as it will be for the arbitrator to decide whether the claim is barred by limitation. The Court in which the suit is prosecuted, may and ought to pronounce in a proper case that the suit was prosecuted in good faith and with due diligence. A party before the arbitrator is therefore placed in the same position as regards the defence of limitation, as he will be, before a court of law. In the view I have taken, I must further hold that the possibility of a claim being barred by limitation before the arbitrators is not a relevant consideration for the exercise of discretion under sec. 34 of the Arbitration Act. In (16) Purshottamdas v. Impex Ltd. AIR 1954 Bom. 309 a Division Bench of the Bombay High Court in considering whether the time spent in arbitration proceedings can be excluded in computing the period of limitation in a suit subsequently brought on the same cause of action, held that such time can be excluded under sec. 37 (5) of the Arbitration Act but not under sec. 14 (1) of the Limitation Act. The learned Chief justice said that the legislature never intended that proceedings before an arbitrator should come within the ambit of section 14 (1. In (15) Ramdutt Ramkissendas v. E. D. Sassoon and Co., it was by analogy that the Judicial Committee held that the "civil proceedings in a court" under sec. 14 must be held to cover civil proceedings before arbitrators whom the parties have substituted for the Courts of law to be the judges of dispute before them. In (15) Ramdutt Ramkissendas v. E. D. Sassoon and Co., it was by analogy that the Judicial Committee held that the "civil proceedings in a court" under sec. 14 must be held to cover civil proceedings before arbitrators whom the parties have substituted for the Courts of law to be the judges of dispute before them. He distinguished the decision on the basis that the Judicial Committee was concerned with two arbitrations where the Limitation Act did not strictly apply but in the case before him the question of limitation arose in a suit to which the Limitation act expressly applied and therefore there could be no question of applying sec. 14 by analogy. He added that if sec. 14 was strictly construed, it could not possibly cover the case of arbitration proceedings. His Lordship dissented from a decision of the Allahabad high Court in (17) Biharilal Baijnath v. Punjab Sugar Mills AIR 1943 All. 162 and (18) Ratechand v. Wasudeo AIR 1948 Nag. 334 where the Courts held, relying on the decision of the Judicial committee, that sec. 14 applies to arbirtration proceedings. With great respect i cannot agree with the learned Chief justice that the proceedings before the arbitrator do not come within the ambit of sec. 14 of the Limitation Act, or at least, that they never do. 31. Section 34 (5) met the situation which arose in the case before chagla, C. J. but there are cases, and here is one, where that section is of no assistance at all and it is necessary to invoke section 14 of the Limitation Act to mitigate the rigour of the law of limitation. In my opinion, in construing sec. 14 (1) of the Limitation Act in the context of arbitration proceedings the reasoning adopted by the Judicial committee in Ramdutt's case remains valid, the more so, because sec. 37 (1) of the Arbitration Act has made all the provisions of the Limitation Act applicable to arbitration. 32. There is an averment in paragraph 17 of the petition that the petitioner was at all material times and still is ready and willing to do all things necessary to the proper conduct of the arbitration in terms of the arbitration agreement. It is hardly necessary to repeat that this is a pre-requisite to an application under section 34 of the arbitration Act. It is hardly necessary to repeat that this is a pre-requisite to an application under section 34 of the arbitration Act. Paragraph 17 of the petition, where the averment is made, has been verified as based on information received from the records of the case kept in the office and believed to be true. No particulars of the records have been disclosed in the verification. The learned judge has held that this is not a proper verification and relied upon an unreported decision of this Court in appeals Nos. 1, 2, 8 of 1962 (Jugo metal v. Rungta and Sons. He did not rest his decision on the defective verification, for as he has said in his judgment, if he had been of a different opinion on the merits of the application he would have given an opportunity to the petitioner to reverify the paragraph. The importance of verification has often been stressed and cannot be stressed too often. Half a century ago in (19) Padmavati Dassi v. Rasiklal dhar, 37 Cal. 259 Sir Lawrence Jenkins, c. J., and Woodroffe, J., expressly held that the provisions of Order 19, rule 3 of the Code of Civil Procedure must be strictly observed: 'every affidavit should clearly express how much of the statement is true to the deponent's knowledge and how much of the statement to his belief, and the grounds of belief must be stated with sufficient particularity. ' 33. In (20) H. S. Ahmed v. Chatoolal dey 46 C. W. N. 474 Derbyshire C. J., said "there have been many occasions in the past when judges sitting on this bench have had to comment upon the irregular way in which affidavits are prepared. As far as back in 1909 sir Lawrence Jenkins and Woodroffe JJ., commented on it in the case of (19) Padmavati v. Rasiklal : "my predecessor, Sir George Rankin, I am informed, also commented upon it; and i myself had to comment previously on the way in which the remarks of sir Lawrence Jenkins and Woodroffe, J. in Padmavati Dasi's case have been ignored. Once again I draw attention to this matter and say that unless affidavits are submitted in accordance with law, it is the duty of the Court to reject them. " 34. Once again I draw attention to this matter and say that unless affidavits are submitted in accordance with law, it is the duty of the Court to reject them. " 34. On an affidavit affirmed by the home Secretary, the Supreme Court observed in (21) State of Bombay v. P. J. Naik 1952 S. C. R. 674 : "slipshod verifications of this type might well in a given case lead to a rejection of the affidavit. Verifications should invariably be modelled on the lines of Order 19 Rule 3 of the Civil Procedure Code whether the Code applies in terms or not. And when the matter deposed to, is not based on personal knowledge, the source of information should be clearly disclosed. We draw attention to the remarks of Jenkins C. J. and Woodroffe J. in (19) Padmavati Dassi v. Rasiklal dhar and endorse the learned judge's observance". Having regard to the unsatisfactory nature of the verification we gave an opportunity to the appellant to reverify the petition and state by an affidavit what are the records on which the appellant is relying and what are the grounds of the appellant's belief. In pursuance of those directions, the joint Director of the Department of food affirmed an affidavit on June 9, 1967. He relied on copies of some departmental correspondence. It appears from those letters written three months after the present action was brought by the plaintiff that the Deputy Legal adviser, Ministry of Law advised the state to apply for stay of the suit. Readiness and willingness to make an application under section 34 of the arbitration Act is in our opinion by itself no evidence of readiness and willingness to do all things necessary to the proper conduct of the arbitration, far less of readiness and willingness to do so, at the time when the proceedings commenced. To hold the contrary will be to hold that whenever an application is made under section 34, the Court must presume that the defendant was ready and willing to do all things necessary to the conduct of arbitration at the time when the proceedings commenced, an inference which will make that provision in section 34, superfluous and meaningless. 35. In these circumstances, we have to, as we must, dismiss the appeal. 35. In these circumstances, we have to, as we must, dismiss the appeal. We do so with regret because on the merits of the case, we are satisfied that a stay should have been granted if the appellant had satisfied us on the question of readiness and willingness. In the view we have taken, the appeal fails. The appellant will pay the costs of the appeal. 36. In (13) Union of India v. Sitaram sankarlal I have held on the facts of that case that my discretion to stay the suit should not be used in favour of the petitioner as the petitioner had taken no steps for appointment of an arbitrator, from the 9th March, 1961, till the date of the judgment on the 2nd June, 1964; the petitioner was, no doubt, contending in the application for stay that it was ready and willing to go to arbitration; but there was no evidence to show its readiness and willingness at the time the proceedings commenced. This was the principal ground on which the decision went against the petitioner, namely, the Union of India. I find, there was an appeal from this judgment; but the matter was settled before the Appellate court and the said Court by its order dated the 4th January, 1965, recorded the terms of settlement. I had also said in that judgment "in any event, it would be improper to compel the respondent to go to arbitration at this stage inasmuch as the respondent may be faced with the possibility of its claim being held to be barred by limitation. " I made those observations on the basis of Bachawat J's judgment in (12) Tona Jute Co. Ltd. v. Bilas Roy and Co. (Suit No. 8 of 1965)which was binding on me; but upon considering my learned brother's judgment in this case, it seems to me that the possibility of a claim being barred by limitation before an arbitrator, is not ordinarily a relevant consideration in exercising the Court's discretion under section 34 of the Arbitration Act, especially in view of the provisions of section 37 (1) of the said Act; but there may be cases in which the Court may have to take this factor as well into consideration. For instance, if the court finds that the respondent in an application for stay is falsely denying the existence of the arbitration agreement but the application is being heard after the expiry of the period of limitation due to the laches of the petitioner, the Court may refuse to stay the suit. In fact, I was faced with a similar situation in (22) State of Punjab v. Khandelwal Bros. (Pvt.) Ltd. (Suit No. 1704 of 1961 : Award No. 171 of 1962)and I had to refuse the application for stay.