Sabyasachi Mukharji, J. - (1.) THIS is an appeal from a judgment and order passed by Mr. Justice Salil Kumar Roychoudhury on 11th of February, 1981 granting the stay asked for and directing the parties to take immediate steps for initiation of the reference under the arbitration agreement contained in the contract mentioned in the plaint. The judgment was passed on an application under Section 34 of the Arbitration Act, 1'940 for stay of Suit No. 736 of 1978 instituted by I.T.C. Ltd. v. G. J. Fernandez. Before I refer to the relevant averments in the plaint it will be important to understand the background under which this application came to be made. The suit was filed on 29th of September, 1978 by the Charterer, for a declaration that the contract and modifications mentioned in the plaint were void and illegal and a decree for Rs. 39,64,341/- or an enquiry as to what amount was due to the plaintiff. In that suit instituted by I. T. C. Limited there were two defendants namely, G. J. Fernandez who was defendant No. 1 and secondly, Canara Bank, defendant No. 2. George Joseph Fernandez being the defendant No. 1 made an application on 24th of April, 1979. George Joseph Fernandez was the absolute owner of two fishing Trawlers Avemaria I and Ave Maria II registered under Nos. 1567 and 1568 dated the 30th of January, 1974 with the Registrar of Indian Ships, Cochin. The said trawlers were imported by the said petitioner under an import licence No. P/CG/ 2062299 dated 3rd of March, 1971. As good deal of arguments were advanced on the conditions of licence it would be relevant to refer to some of the relevant provisions of the licence. The licence was headed "Industry Processed Food (Fishing)". Under Column No. 2 the description and quality of the goods were indicated as two Nos. of fishing trawlers as per list. The approximate value of CIF was stated to be Rs. 23,55,000/-only. The period of shipment was indicated 12 months the date of issue and revalidated up to 6th of January, 1973. The licence was granted, under Govt of India, Ministry of Commerce and Industry Order No. 17/55 dated 7th of December, 1955 as subsequently amended, issued under the Import and Export Control Act, 1947 and was without prejudice to the application of any other prohibition or regulation affecting the importation of the goods which might be enforced at the time of their arrival. In the instruction columns it was stated that the provision which was inapplicable should be struck off. It was further stated that the licence was issued from file No. CGIII/25/143/71. In column I which was not struck off, indicated as follows: -- "(i) THIS licence is issued with an initial validity period of twelve/twenty-four months from the date of issue. It will be revalidated at or before the end of the said period of twelve-twenty-four months, for a further period of two-one year(s), upon request provided the licensing authority is satisfied that a firm order has been placed on and accepted by the foreign supplier but shipment could not be effected within the initial validity period of the licence. Normally the validity period will not be extended beyond three years from the date of issue. (ii) THIS licence will be subject to the conditions in force relating to the goods covered by the licence, as described in the relevant import Trade Control Policy Book, or any amendment thereof made up to, and including, the date of issue of the licence, unless otherwise specified. (iii) It is also the condition of this licence that:-- (a) where an irrevocable letter of credit is opened by the holder of licence to finance the import of any goods covered thereby, then the authorised dealer hi foreign exchange through whom the credit is opened shall be deemed to be a joint holder of this licence to the extent of the goods covered by the credit, (b) The goods imported under this licence will be utilised in the licence holder's factory and that no portion thereof will be sold to or be permitted to be utilised by any other party or pledged with any financier other than Banks authorised to deal in the foreign exchange and Stale Financial Corporation provided that particulars of goods to be pledged are reported by the licensee in advance to the licensing authority. (c) a half yearly return in the attached pro forma shall be furnished by the licensee to the Director of Statistics, Office of the Chief Controller of Imports and Exports, New Delhi, indicating the actual imports and remittance made against the licence as on 28th February, and 31st August, each year. The return for each half year shall be furnished within a period of 15 days from the close of the half year as indicated." Clause (d) of Sub-clause (iii) was not printed because it was not applicable. Column (iv) is also not relevant. Clause 3 was as follows:-- "3. The licence shall also be subject to the conditions mentioned in APP 31 to the ITC Hand Book of Rules and Procedure 1970." Clauses 4 and 5 are also not relevant for our present purpose. The Code of export conditions attached to the import licence in question contained, inter alia, the following clauses:-- "1. The proprietor of the licensee firm shall give a personal guarantee to the effect that the value of the export of fish and fish products during a period of seven years from the date of acquisition of the trawlers will not be less than Rupees 47,10,000/- (Rupees forty-seven lakhs and ten thousand only) and that the licensee shall become a member of the Marine Products Export Promotion Council, if already not a member and shall continue to be a member during this seven year period and shall send periodical returns to the Council and the Ministry of Foreign Trade and Dy. CCI and E, Ernakulam, giving information regarding export performance. The above exports should be over and above the licensee's present level of exports, and if, and will be in addition to any export obligation the licensee might have given in respect of any other import of capital goods or otherwise". "6. The licensee shall furnish to the Deputy Chief Controller of Imports and Exports, Ernakulam, before clearance of the goods, imported against this licence, from Customs, the personal guarantee and the Bank Guarantee stipulated in paras 1 and 2 above." "7. The goods covered by this import licencee shall not under any circumstances be released by the Customs authorities unless the personal guarantee and Bank Guarantee as stipulated in para 6 above has been furnished by the licensee." It appears that sometimes after the grant of the licence the fishing trawlers were imported from Mexico and were hypothecated to Canara Bank. It appears from the reading of the plaint that the said defendant No. 2 being the present respondent No. 2 was made only a pro forma defendant to the suit. On the 21st of March, 1977 there was a Charterparty Agreement between the owner namely. defendant No. 1, and the petitioner herein and the I. T. C. Limited for letting the trawlers for a term of 2 years from the date of actual delivery on certain terms. As the contentions of the parties turn on the effect of these terms it would be appropriate to refer to some of the terms. In the recital it was stated that this was a Bare Boat Charterparty made on the 21st of March, 1977 between defendant No, I, the proprietor and I. T. C. Limited and it was stipulated that the defendant No. 1 would be described in the agreement as the owner and I. T. C Limited would be described as the Charterer. The recital further went on to observe as follows:-- "3. The owner has undertaken to obtain permission in writing of the Chief Controller of Imports and Exports. Government of India and the No-objection Certificate of the Canara Bank for chartering the trawlers to the Charterers." "1. The owner shall obtain the permission in writing of the Chief Controller of Imports and Exports, Government of India and the No-objection Certificate from the Canara Bank to charter the trawlers to the charterer. THIS agreement shall receive from the Chief Controller of Imports and Exports and from the Canara Bank permission and No-objection Certificate respectively." "2. Within 7 days of the receipt of the approval of the JOCIE or the No-objection Certificate from the Canara Bank whichever is later the owner shall deliver the said trawlers to the Charterer at the Port of Vishakhapatnam for carrying out an inspection of the said trawlers by its Authorised Agents to ascertain the repairs to be carried out to the trawlers for making them fully operational without any defect whatsoever and also to ascertain the cost of such repairs. Thereafter the Charterer shall undertake the repairs at the cost of the owner and bring them to fully operational condition without any defect including all aspects of refrigeration equipment. The Charterer will then conduct fishing trials to ascertain the actual condition of the trawlers and in case the condition is fully satisfactory according to the Charterer and the owner furnishes to the Charterer all documents certifying seaworthiness and also supplies sufficient proof that all port charges, pilotages and all pre-conditions to the lawful operations of the trawlers have been complied with the Charter hire shall commence on and from the date the fishing trials are ended. The cost of the repairs as mentioned above shall be borne by the charterer initially who will have the right to set off and adjust the said cost against the first quarterly instalment of the charter hire reserved hereunder and as stipulated hereinafter and if there is any balance left, it will be adjusted against the subsequent monthly instalments in their entirety until the cost of repairs undertaken by the charterers shall be fully set off and adjusted against charter hire reserved hereunder." Clause 3, Clauses 4, 5, 6, 7, 8 and 9 are not relevant for our present purpose. Clause 10 was as follows:- "10. (1) The charterer shall pay to the owner for the use and hire of the trawlers Rs. 50,000 per trawler per month from the date of actual delivery and acceptance of each trawler to the charterer at Vishakapatnam, The charter hire shall be payable in advance every month. However the charter hire for the first three months of the charter period in advance at the time the trawlers are delivered to the charterer in accordance with this agreement. The charter hire shall continue to be paid up to and including the date of re-delivery of each trawler to the owner at Vishakapatnam (unless lost/sunk). The charterer will have no right to adjust the charter hire charges against the deposit paid by it to the owner or against any other claims of the charterer, except as provided in this agreement. (ii) The charterer agrees to keep a deposit of Rs. one lakh per trawler with the owner during the period of the charter. THIS deposit will be paid by the charterer at the time of taking delivery of each trawler and will not bear any interest and will be adjusted by the charterer towards the charter hire due to the owner against the last two months of the charter period." Clauses 11, 12, 13, 14, 15, 16 and 17 are not relevant for our present purpose. Clause 18 contained the arbitration clause which was as follows: "18. Any dispute or difference at any time arising between the parties hereto in respect of the construction meaning or effect or as to the rights and liabilities of the parties aforesaid hereunder or any matter arising out of this Agreement, shall be referred to arbitration in accordance with and subject to the provision of the Indian Arbitration Act, 1940 or any statutory modification or re-enactment thereto for the time being in force and the venue of Arbitration shall be Madras or Calcutta, and not elsewhere and the Award or Awards in such arbitration shall be made a rule of Court of competent jurisdiction at the instance of either party." It is the case of the respondent to this appeal being the applicant under Section 34 of the Arbitration Act, and defendant No. 1 to the suit that by 28th of February, 1976 the export obligation in the licence had been fulfilled and guarantee bond was cancelled by the Chief Controller of import and Export. It appears further that on 10th of July, 1977 the trawlers were delivered to the charterer for repairs. On 1st of August, 1977 there was a telex message from the charterer to the owner forwarding the message from the Canara Bank by which the bank signified their non-objection to the vessels being chartered subject to the condition that the bank would have the first charge over the said two trawlers and that payment arising out of the Charter Party Agreement such as advance rent and monthly rental were to be channelled through Canara Bank only and the lease agreement, the copies of which were to be given to the bank and the period of the lease agreement to be intimated. The charterer was agreeable to those terms. Thereafter, repairs commenced. It is not clear from the petition as to the actual date. On the 17th of August, 1977 permission was given by the Chief Controller, Import and Export to charter the two vessels at Rs. 50,000 per month per trawler to I.T.C. for a period of 3 years. It would be appropriate to refer to the letter dated 17th August. 1977 which contained as follows'.- "Gentlemen, With reference to your letter No. EEE; F24; 1010 dated 2nd May, 1977 on the above subject. I write to say that it has been decided to allow the charting of the two trawlers imported by you against your licence No. P/CC/2062299 dated 3rd March, 1971 on a charter rental of Rs. 50,000 per month per trawler to Messrs I.T.C. (India) Ltd. Calcutta for a period of three years." Thereafter, on 30th of September, 1977 the plaintiff took out insurance cover with effect from 30th of September, 1977. Thereafter formal delivery was given for repairs as it appears from the averments made in paragraph 8 of the plaint about which we shall presently refer. On 12th of November, 1977 there was a letter from the owner to the charterer asking for payment of the hire from October 1, 1977. In that letter written in the trade name of the respondent to the appellant dated 12th of November, 1977 it was stated, inter alia, as follows:-- "The above two trawlers were handed to you for dry-docking and effecting necessary repairs, as early as 10th July, 1977. But, unfortunately there has been undue delay and it is not known when the repairs would be completed. As you know your Mr. B.P. Singh and our Mr. Fernandez were not in favour of Mr. Sundaram. But in view of the good work done earlier by him in respect of Electronics items, and his assurance that he will do quick work. Mr. Sundaram was accepted for Refrigeration and also Hydraulics' work when Mr. Pernandez was here last, he made it clear to Mr. Sundaram that the whole Refrigeration System should be made perfect on both trawlers including Hydraulics, through capable men, latest by 25th September, 1977. But this work is still to be completed and we do not know when. Subsequently we understand, you had engaged Mr. Sundaram for other works also, like Electrical, Electronics, including Auto Pilot, R.T. etc. and for every thing he is looked up to. Unfortunately his men are not regularly present or working, with the result, there is little or no progress. In view of the fact there has been inordinate delay, you shall make the charter charges, payable to us, which has become effective from 1st October, 1977 for both trawlers, irrespective of when the trawlers will be completely repaired, including the refrigeration and Hydraulic System, or when the same will be sent out to sea for fishing. Also kindly arrange to pay the Port charges with effect from 1st October, 1977 for both trawlers."
(2.) BY a letter dated 22nd November 1977 the owner again asked the charterer to pay the rental of the two vessels from 1st October 1977 and also for depositing Rs. 2,00,000 and it was stated that Mr. Sundaram who was engaged to carry out the refrigeration work at the instance of the charterer had neither the capacity nor the organisational set up even to commence the work in right earnest. In the letter dated 28th of November, 1977 from the charterer to the owner it was informed that the trawlers had been insured for one year from 30th Sept., 1977 to 28th Sept., 1978. On 2nd of Feb., 1978 there was an agreement between the owner and the charterer modifying the Charterparty dated 21st March, 1977 in certain respects. The said agreement dated 2nd of February, 1978 after reciting the past events stated, inter alia, as follows :-- "Now it is hereby agreed by and, between the parties hereto as follows :-- 1. Clause 2 of the Agreement dated 21st March between the parties hereto (hereinafter called the "Original Agreement") will be substituted by the following clause numbered as 2. The charter hire of the trawlers has commenced from 15th day of January, 1978. The Charterer has incurred substantial expenses on repairs of the two trawlers which are the subject matter of this agreement. It is strictly understood and agreed between the parties hereto that the owner will bear only Rupees 1,50,000 per trawler of such repair expenses for repairs already carried out up to the date of commencement of the charter hire. The Charterer will have the right to set off and adjust the abovementioned sum of Rs. 1,50,000 per trawler (i.e. a total of Rs. 3,00,000) against the charter hire reserved hereunder. Such adjustment will commence with effect from the four of the month of the charter and the sum of Rs. 1,50,000 per trawler will be recovered by way of such adjustment in ten equal monthy instalments." It was stipulated that the charter hire was to commence from 15th of January, 1978 and the owner was to bear the repair expenses to the extent of Rupees 1,50,000 for each trawler to be adjusted against rental from the 4th month of the charter in equal monthly instalments and the rental would be Rs. 53,000 per month from the first month of the year and for subsequent months Rs. 52,000 and the deposit of Rs. 100,000 for each trawler to be kept. It appears that by the first week of February, 1978 Rs. 2,00,000 was deposited and hire of Rs. 4,70,000 up to May, 1978 was paid. Our attention was drawn to a portion of the Director's report of the appellant company for the year ending 31st March, 1978 and it would therefore be appropriate to refer to the said relevant extract which has been printed in the Paper Book at page 178. There it was stated, inter alia, as follows: "The company has already established itself as a substantial exporter of Marine Foods. During the course of the year Rs. 3.85 crores worth of Marine foods was exported. The company acquired two Mexican Trawlers and although there were certain initial difficulties in the commissioning of these boats, these have now been overcome. The two Japanese vessels on charter mentioned in the Director's Report for the previous year have now been purchased and with your Company having chartered two more Mexican Vessels, a fleet of 6 large Trawlers is now operating, thus ensuring a firm basis for the procurement of quality raw materials. A substantial drop in the prices of exportable shrimps during the financial year adversely affected many of the exporters, including your Company. Prices have however now recovered from the low levels that prevailed at the end of 1977 and the Company can once again look forward to improved trading results." On 18th of July, 1978 there was a letter from the charterer to the owner sending hire up to July, 1978 against adjustment of the repair charges. On 14th Sept. 1978 the letter from the charterer to the owner stated that the charterparty was illegal and in breach of the permission of the Chief Controller of Import and Export and as such was void. It was also stated that the modification was also void and the charterparty had become impossible of performance and asking the trawlers to be taken back. On 16th Sept. 1978 there was a letter from the owner to the charterer confirming a telegram sent on 16th Sept. 1978 and holding the charterer liable under the agreement and objecting to the unilateral termination of the contract and denying the allegations in the charterer's letter dated 14th Sept. 1978. On 29th of Sept. 1978 Suit No. 736 of 1978 was filed by the charterer against the owner which was the subject matter of the said application under Section 34 of the Arbitration Act and is also the subject matter of the present appeal. In paragraph 5 of the plaint it was stated that in or about August, 1977 Canara Bank had intimated that it had no objection to the defendant No. 1 chartering the said trawlers to the plaintiff subject to certain terms and conditions and it was further alleged by the present appellant that all of which were complied with and accepted. It was further stated in the plaint that there was a purported permission granted to the respondent No. 1 to the present appeal by the Chief Controller of Imports and Exports who chartered the trawlers to the plaintiff for a charter rental of Rs. 50,000 per month per trawler for a period of three years. Thereafter, the modifications referred to the charterparty agreement dated 2nd of Feb. 1978 were indicated and it wag described as purported modification. Thereafter, the plaint alleged in paragraphs 10, 11 and 12 as follows:-- "10. The said purported permission dated 18th August, 1977 granted by the Chief Controller of Imports and Exports to the defendant No. 1 for chartering the said trawlers to the plaintiff was given under the said import licence of the defendant No. 1. Such purported permission was given subject to two conditions, namely, that the charter rental would be Rs. 50,000 per month and that the charter would be for a period of 3 years. The said purported agreement dated the 21st March, 1977 was in fact for a period of 2 years with an option to the plaintiff to continue the hiring for a further period of 3 years. The said purported agreement, therefore, was in contravention of and contrary to the terms of the said purported permission and consequently the said import licence. The said purported agreement was or is illegal, against public policy and void. 11. Alternatively, or in any event, the said purported agreement dated 21st March, 1977 was contingent contract, the future events on which the contract was contingent being the receipt of the no-objection certificate from the Canara Bank (the defendant No. 2 herein) and the permission of the Chief Controller of Imports and Exports for chartering the trawlers to the plaintiff on the terms and conditions as agreed between the plaintiff and the defendant No. 1. The purported permission of the Chief Controller of Imports and Exports did not approve of or give permission in the said purported agreement dated 21st March, 1977 but purported to approve of or give permission for different forms or an agreement containing different terms; and as such, no permission, rated or otherwise was at all given for the said purported agreement dated 21st March, 1977. In the premises as aforesaid the said agreement was in violation of the provisions of the Imports and Ex-ports (Control) Act 1947 and was and/or became illegal, void and inoperative. 12. The purported modification agreement dated 2nd February, 1978, which, inter alia, provided that the charter rental would be Rs. 53,000, in the first month of the year beginning 15th January, 1978 and Rs. 52,000 per month for the subsequent months, was also in contravention of the said purported permission dated 18th August, 1977 of the Chief Controller of Imports and Exports and consequently in contravention of the said purported licence according to the allegations in the plaint. There was no or no valid permission for the said modification agreement and as such the same was in violation of the provisions of the said Act, as much illegal, against public policy and void. In paragraphs 14 and 15 it was stated as follows:-- "14. Further, the plaintiff states that after various tests, trials and repair works made on the trawlers it was found in or obout August, 1978, that there are several inherent and latent defects in the refrigeration system of the said trawlers, which is an essential part of such trawlers and which such defects were not discoverable by ordinary diligence at the time of entering into the said purported agreement dated 21st March, 1977 or at the time of said purported modification thereof. Those defects are such that without changing the entire refrigeration system and/or without incurring expenses which would be prohibitory, unreasonable and/or prohibitory, it is not possible to remove or rectify the same. The trawlers could not and cannot be made fully operational and free from any defects whatsoever, by making repairs as contemplated by the said purported agreement and the modification thereof. The particulars of some such defects are given in a schedule annexed hereto and marked "C". The plaintiff craves leave to treat the said schedule as a part of this plaint. 15. Further and/or in any event the plaintiff states that the plaintiff and the defendant No. 1, entered into the said purported agreement dated 21st March, 1'977 and the purported modification thereof dated 2nd February, 1978 on the basis of essential and fundamental assumption that the trawlers could be made fully operational and free from all defects by effecting repairs so contemplated thereby. Such assumption was mistaken and not true and was subsequently discovered to be so mistaken. In the premises the said purported agreement modified as aforesaid was and is void." After setting out the other facts as we have mentioned hereinbefore it was claimed that the charterer being the respondent No. 1 to this appeal was bound to pay the compensation for all the advantages which it had received under the said purported agreement dated 21st of March, 1977 and the purported modification thereof and the costs, charges and expenses which the plaintiff has incurred on the said trawlers. It was further alleged that such compensation incurred on the said trawlers was assessed at Rs. 39,64,341 the particulars whereof were given in Schedule 'D'. The said Annexure 'D' was comprised of the following:-- Annexure 'D' -------------------------------------------------------------------------------- Ave Maria I Ave Maria II Total -------------------------------------------------------------------------------- 1. Chatter Hire 2,94,000 2,94000 5,88,000 2. Deposit 1,00,000 1,00,000 2,00,000 3. Payment against Spares 6,000 67,000 1,35,000(?) 4. Expensesup to 31st August. 1978. 1598295 -------------------------------------------------------------------------------- 15,04,518 -------------------------------------------------------------------------------- 30,41,341 -------------------------------------------------------------------------------- 19,98,295 -------------------------------------------------------------------------------- 19,66,048 -------------------------------------------------------------------------------- 39,84,341 -------------------------------------------------------------------------------- It was further claimed in the alternative in paragraph 19 that in supplying the said trawlers the defendant No. 1 committed a fundamental breach of the said purported agreement dated 31st March, 1977 and the purported modification thereof which went to the root and affected the very substance of the same and which made performance thereof impossible. Such a breach on the part of the said respondent it was further alleged had produced a situation fundamentally different from which the parties could not have reasonably contemplated when the said agreement and the modifications were entered into. The plaintiff, it was further alleged, had not been able to obtain any benefit out of the said trawlers and the appellant being the plaintiff never was nor was bound by any obligation under the said purported agreement dated 21st March, 1977 and the purported modification thereof and was entitled to and had duly rescinded the same and the plaintiff had in the premises suffered loss and damages which the respondent No. 1 was bound to compensate. It was alleged that such loss and damages were assessed reasonably at Rs. 39,64,341. For this purpose also reference was made to the particulars mentioned in the said schedule. In the further alternative, it was claimed that the plaintiff was entitled to recover the said sum of Rs, 39,64,341 as per particulars given in the Schedule 'D' as money paid to and/or on account of the respondent No. 1 and expenses so incurred. Thereafter, the plaintiff claimed, inter alia, a declaration that the said purported agreement dated 21st March, 1977 and the purported modification thereof dated 2nd of February, 1978 were and are illegal, against public policy and void; for a decree for Rupees 39,64.341-00 as per particulars mentioned in Schedule 'D' or alternatively an enquiry. There was also an enquiry claimed in the further alternative. A letter was written to the charterer by Mr. Sampat Kumar, Advocate for the respondent No. 1 on 9th of Oct., 1978. There was letter prior thereto on the 27th of September, 1978 from the Charterer to Mr. A. N. Huskar, Chairman ITC Limited making the grievance of the unilateral repudiation by the ITC Limited of the contract to charter fishing trawlers. The other relevant letters to which we must refer is the letter dated 23rd of Nov., 1978 nominating one Mr. K. S. Venkataraman, I.C.S., retired Judge of the High Court at Madras as the Arbitrator of the respondent No. 1. This letter was written on behalf of the character being the respondent No. 1 herein. On the 12th of Dec., 1978 I.T.C. Limited replied that this suit had been filed on 29th of Sept., 1978 as indicated before it was not in a position to participate in the arbitration. On the l'2th of March, 1981 a letter was written by the respondent No. 1 to I.T.C. Limited which is as follows:-- Dear Sirs. Whereas by the Bare Boat Charter Party Agreement dated 21st March, 1977 between G. J. Fernandez, Proprietor. Esmario Export Enterprises, Kanand, Quilon, Kerala State and M/s. I. T. C. Limited, Virginia House, 37, Chowringhee, Calcutta-700071, as modified by the agreement dated the 2nd February, 1978 between the said two parties it was agreed inter alia that any dispute, difference at any time arising between the parties hereto in respect of the construction, meaning or effect or as to the rights and liabilities of the parties aforesaid hereunder or any other matter arising out of the agreement shall be referred to arbitration in accordance with and subject to the Indian Arbitration Act, 1940 and the venue of the arbitration shall be in Madras or at Calcutta and not elsewhere. 2. Whereas the dispute have arisen between the said parties arising out of the said agreement. Now, therefore, I.G.J. Fernandez hereby nominate and appoint Mr. K. S. Venkataraman, I.C.S. Retired Judge of Madras High Court, 'O H M' Prithivi Avenue Madras-600018 as the arbitrator to hear and determine the dispute aforesaid in accordance with the provisions of the said agreement. I call upon you to concur on the said appointment of Mr. K. S. Venkataraman as such Arbitrator. Please send the reply immediately." Thereafter, an application was moved under Section 34 of the Arbitration Act for the stay of suit by ITC Limited, the present appellant, on 24th of April, 1979 and after affidavits the matter ultimately was disposed of by the judgment and order of the learned trial Judge dated 11th of February, 1981 as mentioned hereinbefore. 2-A. After setting out the letters the learned Judge observed that the letters indicated that the transaction was given effect to and acted upon by the parties and the parties understood what was the agreement and what were the terms. The learned Judge thereafter referred to the averments made in the plaint the substance of which we have set out hereinbefore. The learned Judge observ-, ed that the pleadings required for fundamental breach, mistake and illegality had been pleaded by artful drafting filing the plaint through competent lawyers on legal advice. The learned Judge came to the conclusion that there was no basis for the cause of action in the plaint and of the alleged discovery of mistakes as to the essential conditions that is, the refrigeration system being defective was a patent defect and also illegality, modification, frustration, lack of consideration and impossibility of performance of the contract were all afterthoughts. The learned Judge observed several authorities that was cited before him. A submission was made that these questions could not be gone into in an application under Section 34 nor were these questions capable to be decided on affidavits and where the learned Judge doubted the bona fides of the statements then the matter should have been tried on evidence. The learned Judge thereafter made a categorical finding that in the instant case there was no mistake and in any event there was no question of mutual mistake on the date of the agreement as the fact that the refrigeration system of the said two trawlers needed repairs was known to both the parties and the appellant had undertaken to get the said repairs done at the cost of the petitioner through their nominated repairer about whose competency the respondent No. 1 had doubts. Thereafter, the learned Judge held that there was no question of any mistake at any time of the contract or at any time alleged by the appellant in the plaint. The learned Judge further went on to hold that chartering out a vessel was not contemplated and was not within the operation of Appendix 31 of the hand book and the relevant clauses which were applicable to the present case namely, Clause 5 being one of the conditions regarding the use or disposal of the imported goods stated as follows:-- "Import licences issued to actual users shall be subject to the condition that the licensee shall use the material imported thereunder only for the purpose for which the licence has been issued and no portion thereof shall be sold, disposed of or utilised in any other manner without the written permission of the licensing authority." Condition 8 was as follows:-- (8) C.G./HKP Licences, i.e. those issued 'o actual users for import of capital goods, machinery, heavy electrical plant or machine tools shall be subject to the following conditions inter alia:-- (a) the goods imported under the licence shall be utilised in the licence holder's factory at the address shown in the application against which the licence is issued, and for the purpose for which the licence is issued; and that no portion thereof shall be sold to or be permitted to be utilised by any other party or pledged with any financier other than Banks authorised to deal in the foreign exchange and State Financial Corporation, provided that particulars of goods to be pledged are reported by the licensee in advance to the licensing authority. (b) The import of spare parts against this licence shall be governed by the provisions of paragraph 152 of the Import Trade Control Hand Book, of Rules and procedure in force at the time of shipment of the goods, (e) The goods covered by this licence shall be used only for the manufacture of...... (name of end product(s) and for the capacity licensed under the Industries (Dev, and Reg.) Act, 1951 or approved by Government. (d) a half yearly return in the prescribed pro forma shall be furnished by the licensee to the Director of Statistics, Office of the Chief Controller of Imports and Exports, New Delhi, indicating the actual imports and remittance made against the licence as on 28th February and 31st August each year. The return for each half year shall be furnished within a period of 15 days from the close of the half year as indicated." The learned Judge was of the view that the provision appeared to be applicable to raw materials used for manufacturing purposes and also for the transfer, mortgage, sale etc. of plant and machinery, it could be hardly said to apply to charterparty in respect of vessels which were imported for the purpose of deep sea fishing and in fact the same was used accordingly by the charterer and there was no question of any transfer affecting the ownership of the respondent in the licence in any way. Further, the learned Judge held that permission was in fact obtained, it was duly granted and as the modification of the charter party had not affected the essential conditions it was not necessary to obtain further permission. In the premises, the learned Judge was of the view that there was no question of any illegality or any mutual mistake. He referred to several decisions to which attention has been drawn and he thereafter observed that if the validity of the contract was challenged the Court might go into it which might incidentally affect the question of the contract containing the arbitration clause in an application under Section 34 of the Arbitration Act for stay of the suit. Therefore, having regard to the principles laid down by the Supreme Court in the case of Anderson Wright Ltd. v. Moran and Co. that the Court could go into the question of the validity of the contract which contained an arbitration clause whether the arbitration clause was valid or not. He, therefore, considered that question and having regard to all the facts he characterised the averments made as afterthoughts and the alleged difference on the question of fundamental breach, if any, according to the learned Judge, was fully covered by the arbitration clause as these related to the breach of the terms of the contract and was within the jurisdiction of the arbitrator within the wide arbitration clause in the present case. He, therefore, was unable to accept the submission that there was no valid arbitration agreement. Therefore the conditions for the fulfilment of stay under Section 34 of the Arbitration Act, according to the learned Judge had been fulfilled. He, therefore, granted a stay of the suit and directed the parties to take immediate steps for reference of the disputes to the arbitration. It is the propriety and the correctness of the said decision of the learned Judge which are under challenge in this appeal before us.
(3.) IN support of this appeal it was urged on behalf of the appellant that in order to decide whether stay under Section 34 of the Arbitration Act should be granted or not it was necessary for the Court to consider whether the case as pleaded or the issues as raised in the plaint were within the ambit of the arbitration clause to be adjudicated by the arbitrator and for this purpose the Court must confine itself to the pleadings in the suit and not embark upon the examination of the question whether the case pleaded was correct or genuine or not. It was, secondly, urged that where the issue arose as to whether the contract was void ab initio, and as such the same was not arbitrable, then whether that issue should be decided in a suit or in an application was a matter of procedure and the Court must exercise its discretion properly, having regard to the magnitude and the nature of the evidence required to adjudicate the question. It was submitted that in the instant case it should not have been decided on affidavits in the application because it was urged that the issue as to mistake should not be disposed of summarily, in the facts and circumstances of the case it was better to decide the same in the suit and the issues involved in the suit should not have been decided piecemeal. It was, thirdly, urged that in view of the nature of the pleadings the plea of illegality of the contract as raised in the instant case was not a pure question of law because it involved the adjudication of the facts whether the parties had agreed to obtain the permission. Therefore, in view of the nature of the pleadings and the letters between the parties it was submitted that the question as to mistake which went to the root of the contract or as to illegality involved in this case could not. and should not havo been decided in this manner. IN the premises, it was urged that in exercising his discretion in the manner he has done the learned Judge had proceeded erroneously. It was, further, submitted in support of this appeal that if the suit was stayed and the parties were directed to go before the arbitrator the claim of the plaintiff might be considered to be barred by law of limitation and if that was so then, this was a factor which should be taken into consideration in exercising the discretion of this Court even at the appellate stage in the matter of grant of stay under Section 34 of the Arbitration Act. It was, lastly, urged that the learned Judge overemphasised and was mistaken in taking a wrong view of the conduct of the plaintiff and basing his judgment on hypothesis that the plaintiff had pleaded the case in the manner it had done in order to avoid the jurisdiction of the arbitrator within the arbitration clause. It was, then, urged that the mistake which was pleaded in the facts and in the circumstances of the case was a mistake of such magnitude and was a mutual mistake which went at the root of the contract and made the contract void,;