HIDAYATULLAH, - (1.) THE following Judgment of the court was delivered by
(2.) THIS is an appeal (with certificate) by Messrs. Dhanrajamal Gobindram against a judgment of the Divisional bench of the High court of Bombay, by which a petition under s. 20 of the Indian Arbitration Act was held to be maintainable and the decision of the learned Judge (Original Side) who held otherwise, was reversed. The respondents are Messrs. Shamji Kalidas and Co. (a registered firm), who were the petitioners in the High court. The facts of the case are as follows: On 24/10/1957, Messrs. Dhanrajamal Gobindram (referred to as buyers, hereafter) entered into an agreement with Messrs. Shamji Kalidas and Co. (referred to as sellers, hereafter), for purchase of 500 bales of African raw cotton. The contract was in the form of a letter written by the sellers and confirmed by the buyers. The material portions of the letter, which bears No. SK/Bom/13/2014 and was stamped as an agreement,' are as follows: 'We confirm having sold to you African raw cotton on the following terms and conditions subject to the usual Force Majeure Clause: JUDGEMENT_1285_AIR(SC)_1961Html1.htm Remarks: The terms and conditions on the reverse form part of the contract. This contract is subject to the Bye-laws of East India Cotton Association, Ltd., Bombay, other than the bye-law 35 for arbitration on Quality in case of East African cotton. Terms and Conditions. 1. The shipment is subject to any cause beyond seller's or seller's shipper's control and is also subject toavailability of freight. 5. This contract is subject to the jurisdiction of the High court of Bombay. 6. It will be the duty of the buyers to obtain the import licence and to communicate the number thereof to the sellers immediately on the same being obtained but in any event, not later than 20/02/1958, and in the event of their failure to do so for any reasons whatsoever including the reason that the government of India may not allow the imports of the contracted goods, the sellers shall be entitled at their discretion either to carry over the goods, in which event the buyers shall pay to the seller all carry over charges in addition to the contracted price or to call upon the buyers to pay for the contracted goods and take immediate delivery thereof in. British East Africa and upon the buyers failing to do so, to sell the contracted goods at Kampala or Mombasa at the rates prevalent there in convenient lots and as and when it may be practicable to do so at the risk and account of the buyers and to claim from them any deficit that arise between the contracted price and such resale price and also all expense incidental thereto. 7. Even if the government of India may announce the import policy of the contracted goods in such manner that only the consumers would be entitled to obtain the licences, it will be the duty of the buyers to see that necessary import licences for the contracted goods are obtained in the consumers' name or in the joint names of themselves and those of the consumers the intention being that in all eventualities it is the duty of the buyers to obtain licences under any policy that may be followed by the government of India for the import of the contracted goods and to communicate the number thereof to the sellers within the time as specified hereinabove and on the buyer's failure to do so all the eventualities contemplated under clause 6 shall operate.' By a letter dated 30/11/1957, the contract was later amended by the parties as follows : ' With reference to the above mentioned contracts we hereby confirm that, if necessary, we shall carry over the contracted goods for two months, namely, March and April and you will pay as the carry over charges for the same. The interest payable under such carry over charges will be at the rate prevalent in Mombasa. The other terms and conditions remain unaltered...' The contract was not performed. The sellers wrote as many as five letters between 1/03/1958, and 26/05/1958, before they received a reply from the buyers dated 3/06/1958. By that time, the sellers had carried forward the contract, and also invoked their right of resale after giving notice, and claimed Rs. 34,103.00. 15 nP. for which a debit note had been issued. This note was returned by the buyers with a letter of 3/06/1958, stating that the contract was void and/or illegal', that they were not obliged to perform it, that there was no right of any sale on their., account and/or on their behalf, and that the alleged' sale was not binding upon them. [Ex. ' D ' (Colly) No. 6.] The sellers then invoked the arbitration clause of the agreement and Bye-law 38-A of the Bye-laws of the East India Cotton Association, Ltd., Bombay, and moved the Bombay High court, on the Original Side, under s. 20 of the Indian Arbitration Act, requesting that the agreement be filed in court and the dispute referred to arbitration. The buyers appeared, and resisted the petition on grounds which they set forth in affidavits filed from time to time. By their first affidavit dated 31/07/1958, the buyers contended that cls. 6 and 7, quoted above, were unlawful, as the liability created under them amounted to a contravention ' of the import policy of government of India ' and the Foreign Exchange Regulation Act, 1947, and the Rules made thereunder. They contended that, in view of the invalidity of the contract as a whole, the arbitration clause in the agreement was not binding, and that the agreement could not be filed. In the second affidavit which was filed on 4/02/1959, they added the reason that the words ' subject to the usual Force Majeure Clause ' were vague and uncertain, and made the contract' void ab initio, as there was no consensus ad item between the parties. They contended that the con. tract being void, the arbitration clause was also void. By yet another affidavit filed on 27/02/1959, they averred that the letter dated 30/11/1957, was void, being in contravention of the Import Trade Control Act and the Foreign Exchange Regulation Act and the Rules made under the two Acts, inasmuch as the consideration was one forbidden by law and was likely to defeat the provisions of law. They also stated that the words ' if necessary ' in that letter rendered the contract void ab initio for vagueness and uncertainty. The case was heard by K. T. Desai, J. (as he then war,). On 3/03/1959, the learned Judge dismissed the petition as not maintainable on the ground that ,the dispute was about the legality or validity of the contract including the agreement about arbitration, and that such a dispute could only be considered under ss. 32 and 33 of the Arbitration Act by the court and not by the arbitrator in a reference under s. 20 of the Act. He declined to consider the question under the former sections, because the petition had not asked for that relief, observing that if by a proper petition the question were raised, it would be decided. Against the order of the learned Judge (0. S.), an appeal was filed by the sellers. This appeal was heard by Chainani, C. J. and S. T. Desai, J. on 28/04/1959. The learned Judges held that a claim was made by the sellers and was denied by the buyers; that there was thus a dispute arising out of or in relation to a contract as contemplated by Bye-law 38-A; that in showing cause against the petition under s. 20, the buyers had averred that the contract was illegal and void; and that such a question could be decided by the court before making the reference. The learned Judges pointed out that a petition under ss. 32 and 33 of the Indian Arbitration Act questioning the existence or validity of an arbitration agreement was not to be expected from one making a claim under a contract, that the plea was always likely to be raised by one resisting the petition, and that when such a plea was raised, the court must decide it, even though the proceedings be under s. 20 of the Act for making a reference. The case was, therefore, remanded with the following direction: ' As the respondents have challenged the validity of this agreement, the court will have to decide this question before passing further orders in the matter. Accordingly we set aside the order passed by Mr. Justice K. T. Desai, dismissing the petition filed by the petitioners, and remand the matter to the trial court for deciding the objections, raised by the respondent under Ss. (3) of section 20 of the Act, to the arbitration agreement being filed in court, and then disposing of the matter in accordance with law.'
(3.) WHEN the case went back for retrial, the buyers filed their fourth affidavit on 16/11/1959. They stated in that affidavit that Bye-law 38-A was a statutory Bye-law of the East India Cotton Association, Ltd., Bombay, a recognised Institution under the Forward Contracts Regulation Act, No. 74 of 1952, and that s. 46 of the Arbitration Act was applicable. They contended that inasmuch as the Bye-laws of the Association prescribed a different machinery inconsistent with and repugnant to s. 20 of the Arbitration Act, the latter section was inapplicable, and that the petition was incompetent. By his order dated November 26 and 27,1959, K. T. Desai, J. hold that the petition did not disclose sufficient materials, and that the sellers were not entitled to have the agreement of reference filed, or to have an order of reference made. Though be held that the Bye-laws of the East India Cotton Association, Ltd. were statutory, and that ss. 46 and 47 of the Arbitration Act applied, he was of opinion that s. 20 could not be invoked, because no action under sub-s. (4) of a. 20 could be taken. The reason given by the learned Judge was that under that Ss. the court had to appoint an arbitrator, if the parties failed to agree, and that Ss. was not applicable, because the machinery of Bye-law 38-A left no power of action to the court. He also felt that there was no averment in the petition that the parties had not agreed. On the rest of the points raised by the buyers in their affidavits, the learned Judge held against them. He held that, in view of ss. 21(2) and 21(3) of the Foreign Exchange Regulation Act, there was no infringement of that Act by the agreement entered into, though he expressed a doubt if the words ' legal proceedings ' in s. 21(3) were wide enough to include an arbitration. He also held that cl. 7 of the conditions under which the contract was to be performed was, at least in part and under certain circumstances, not a contravention of the Import and Export Control Act, 1947, or the Import Trade Control Order issued Under ss. 3 and 4-A of that Act, and thus not wholly void. He held lastly that the contract was not void for vagueness or uncertainty either on account of the reference to ' the usual Force Majeure Clause ', or because of the words if necessary ' in the letter of 30/11/1957. The sellers appealed against the dismissal of the petition, and the buyers cross-objected against the adverse findings and the disallowance of costs. The appeal was heard by Tarkunde and Chitale, JJ., and by separate but concurring judgments, the appeal was allowed and the cross-objection dismissed, and the buyers were ordered to pay costs throughout. The Divisional bench agreed with K. T. Desai, J. on all the points decided by him against the buyers. They left open the question whether ' legal proceedings ' in s. 21(3) of the Foreign Exchange Regulation Act were wide enough to include an arbitration for the decision of the arbitrators to be appointed, and addressing themselves to the question raised about s. 20, held that the petition was maintainable. They were of opinion that the court could order the arbitration agreement to be filed and also to refer the dispute to arbitrators to be chosen in accordance with Bye-law 38-A, though they felt that if the latter action could not be taken, at least the first could be, because the procedural part could not destroy the power conferred to file the agreement. In this appeal, all the arguments which had failed before the High court were urged before us. Shortly stated, they are: that the contract was void (a) for illegality and (b) for uncertainty and vagueness on two grounds; that the petition under s. 20 of the Indian Arbitration Act was incompetent, as that section was inapplicable; and that the law governing the parties was not the Indian law but the law of British East Africa. We shall now deal with these contentions. ;