SOHAN LAL Vs. KRISHAN CHANDER RAMESH CHANDER
LAWS(DLH)-1983-7-22
HIGH COURT OF DELHI
Decided on July 05,1983

SOHAN LAL Appellant
VERSUS
KRISHAN GHANDER RAMESH GHANDER AND BROTHERS Respondents


Referred Judgements :-

OWNERS OF THE SHIP ANNEFIELD V. OWNERS OF THE CARGO LATELY LADENON BOARD THE SHIP ANNEFIELD [REFERRED TO]
MODERN .BUILDINGS WALES LTD. V. LIMMER AND TRINIDAD CO. LTD. [REFERRED TO]
CHINOY CHALANI AND CO. AND OTHERS V. Y. ANJIAH [REFERRED TO]
SAHNI ENTERPRISES VS. KEYS INTERNATIONAL [REFERRED TO]
ARTHUR AND CO VS. SHAMJI KALIDAS AND CO [REFERRED TO]
LEWIS W FERNANDEZ VS. JIVATLAL PARTAPSHI [REFERRED TO]



Cited Judgements :-

KAILASH NATH AGARWAL, S/O HANUMAN PRASAD AGARWAL, VS. AAREN EXPORTS [LAWS(DLH)-2009-11-433] [REFERRED]
LUDA RAM VED PARKASH VS. MAHARANI OF INDIA [LAWS(DLH)-1988-9-37] [REFERRED]
LUDA RAM VED PARKASH VS. MAHARANI OF INDIA [LAWS(DLH)-1988-9-11] [REFERRED]


JUDGEMENT

D.X.Kapur, J - (1.)A petition under Section 20 of the Arbitration Act was filed by the respondent and was tried on she Original Side of this Court as Suit No.l23-A of 1980, which was decided by Avadh Behari,J. on 24th August 1981, who held that there was an arbitration agreement between the parties and the matter had to be refered to the Delhi Hindustani Mercantile Association for arbitration and award.
(2.)THE disputes between the parties arose out of dealings between them in the period April, 1978 to September, 1979. THE seller was a firm carrying on cloth business at Delhi, the purchaser was a cloth merchant of Meerut. THE seller is a partnership firm, while the buyer is a proprietory concern. 84 bills were issued by the seller each of which had a printed term to the effect that the goods were sold subject to the Rules and Regulations of the Delhi Hindustani Mercantile Association. THEre was no express arbitration agreement set out in the bills. THE question raised before the learned Single Judge was that the arbitration agreement contained in the Rules and Regulations of the Delhi Hindustani Mercantile Association did not apply. THE question was whether those Rules and Regulations had got incorporated in the sense that the arbitration agrement contained in the Rules and Regulations had also got incorporated. THE learned Single Judge held that the Rules and Regulations of the Delhi Hindustani Mercantile Association had got incorporated, and the Act that the purchaser (now the appellant) was not a member of the Association made no difference because the Rules and Regulations also provided for an arbitration agreement between a member of the Association and a non-member. Reference was made to C.M. Grover v. M/s. Kartar Singh Phool Singh, XVIII (1980) D.L.T. 240, decided by Yogeshwar Dayal J. in this Court, and Arthur and Co. v. 8 K. awl Co., A.I.R. 1972, Bombay 345, decided by a Division Bench of the Bombay High Court, wherein it had been held in similar situation that the arbitration could be between a member of the Association in question and a non-member.
Three major contentions were raised before the learned Single Judge on behalf of the present appellant. Firstly, that the arbitration agreement was not incorporated in the agreement between the parties 'by reference'; secondly, that the Rules and Regulations of the Association only applied to sales and purchases between members of the Association inter se; lastly, the said Rules and Regulations for settling disputes did not amount in law and fact to an arbitration agreement as understood under the Arbitration Act. All these contentions were rejected.

Before us also the learned counsel for the appellant contended that the Rules and Regulations were not incorporated in the contract be members of that Association and non-members, indeed this is almost a standard procedure. If there is an arbitration agreement in the Rules and Regulations, as there commonly is, that arbitration agreement will apply to the contract.

There is a very good reason for this rule of law. Contracts for sale and purchase of commodities and stocks and shares etc., require some specialised knowledge and disputes of this type can very easily be settled through the good offices of the Association in question. Trial in a Court of such disputes involves inherent difficulties which leads to a protracted trial. Therefore, Associations dealing in commodities and involving trading in futures usually incorporate a clause for arbitration by some specialist. The agreement need not necessarily provide that the Association itself will decide the dispute, but there is merely a term that the contract will be subject to the Rules and bye-laws of the Association, which in turn contain an arbitration clause.

Similar arbitration agreements are to be found in the case of Motion Picture contracts. There, the disputes are between producers, distributors or exhibitors. These persons are generally members of an Association, usually called a Motion Pictures Association, Rules and Regulations of which contain a clause for arbitration. Similarly, construction or engineering contract usually prove for arbitration or decision by the architects of the project or, alternatively, by a Board of specialized architects. sometimes, they provide for arbitration by an engineer. The arbitration agreement is to be found in some cases to be incorporated by reference to a standard form or Rules or Regulations of some specialist body.

The grievance of the appellant that the present disputes will not be dealt with fairly because he is a non-member and the other party is a member does not seem to be relevant as there is nothing to show any bias at all. It may be pointed out that there are a very large number of members of the Delhi Hindustani Mercantile Association in Delhi, and there are many decisions, reported and unreported, concerning such arbitrations between members as well as between members and non-members. If any question of bias arises in the arbitration proceedings, that will be a good ground of attack to the award but, it cannot be said that the arbitration agreement is not operative because the appellant is a non-member. The above examples arc sufficient to show that this is not an un-common type of contract. We would, therefore, come to the conclusion that the learned Single Judge was not wrong in holding that the arbitration agreement was incorporated in the contract between the parties.

The learned counsel for the appellant urged that the arbitration agreement could only be incorporated if it was specially pointed out to the appellant. We do not know how the special pointing out is to be done, but it may be mentioned for the record that the application stated in paragraph No. 3 that the respondent came to Delhi in 1978 for placing the order for supply of cloth and the terms were settled at that time. It is also stated that the sale would be governed by the Rules and Regulations of the Delhi Hindustani Mercantile Association. This was the settlement prior to the issue of the bills. In response to this pleading which was in paragraph No. 3 the appellant stated that he had come to Delhi in December 1977, to discuss certain transactions relating to the Phagwara Mill, but, it was not agreed that the contract will be governed by the Rules and Regulations of the Delhi Hindustani Mercantile Association. It may be pointed out that the clause stating that the contract was made subject to the Rules and Regulations of the Delhi Hindustani Mercantile Association is contained in 81 bills, three of which have been signed by the appellant without any objection. There is no pleading in the written statement to the effect that the Rules and Regulations were not known or that the existence of .the arbitration agreement in those Rules and Regulations was not known to the respondent. The contention regarding special pointing out is out of place at this stage. It was not raised in the pleadings and was not even argued before the learned Single Judge.

It may also be mentioned that the trial of the proceedings under Section 20 of the Arbitration Act was by affidavits. In the affidavit of Shri Sohan Lal, appellant, it was stated that the deponent was not informed that there was an arbitration agreement and he never agree to the same however, in the main, the affidavit proceeds on the basis that the arbitration agreement contained in the Rules and Regulations only applies to members and not to contracts with non-members.

(3.)ONE of the points raised in this case during arguments before us was that the Rules and Regulations of the Association as existed in 1973 were amended in 1979. It was submitted that the 1973 Rules did not provide for arbitration between members and non-members, but the 1979 Rules did. It was further submitted that the Rules filed with the petition were the 1973 Rules which did not make provision for an arbitration between a person like the appellant and a person like the respondent. It was, therefore, submitted that there had been a miscarriage of justice. On the other hand, in the 1979 Rules it was conceded that there was a provision for arbitration between members and non-members. In this connection, the appellant filed an application under Order 41, Rule 27 of the Code of Civil Procedure, C.M. No. 2554 of 1982, in which it was contended that the appellant had lately learned that the new Rules became operative on 1st December, 1979. The old Rule was 47 (10), but the new Rules is 47 (8). It was, therefore, prayed that additional evidence be allowed to be brought on the record. This application was filed after the arguments in the appeal had been heard and judgment had been reserved, so we dismissed the application. But, we have taken into account the contentions for the purposes of examining the controversy in this case. The dealings between the parties were in the period April 1978 to September 1979. So, reference to the Rules of 1979 which are alleged to have become operative from December, 1979, is wholly unnecessary. All we have to see is whether the Rules as they existed in the period in question provided for arbitration between members and non-members.
We may atone say that this point was not at all raised before the Single Judge, but as it is a matter of construction of the alleged arbitration agreement, we are bound to examine the Rules and regulations to see whether there is an effective and binding arbitration clause operation in this case.

The Rules and Regulations contained in Annexure 'J' which are the 1973 Rules of the Delhi Hindustani Mercantile Association, arc clearly the ones that applied to the transactions between the parties. Rules 36 is a list of disputes which can be decided by the Association or, under the procedure provided by the Association. This contains a list of 13 different types of disputes. Entry 5 is the only relevant entry in the present case. The effective Rules reads :-

"The Association will settle disputes between the following Classes of persons. (i) ............... (v) between a member and a non-member or other person....... Thus, the Rules do contemplate this type of dispute.

Rule 37 sets out the procedure by which disputes are to be decided. It is a fairly elaborate Rule containing provision for a kind of private trial of the dispute.

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