UNION OF INDIA Vs. BIRLA COTTON SPINNING AND WEAVING MILLS LIMITED

JUDGEMENT

(1.) HEREINAFTER called 'the Company'-supplied to the Union of India goods of the value of Rs. 1,06,670.89 P. under a contract, dated 30/01/1956 and received Rs. 93, 727 as part payment of the price. The Union declined to pay the balance of Rs. 12,943.89 P. The Company then commenced Suit No. 386 of 1958 in the Court of the Senior Subordinate Judge, Delhi, against the Union of India for a decree for Rs. 10,625 and Rs. 2,762.50 P. as interest from 12/10/1956 till date of suit with interest pendente lite and costs of the Suit. The Company alleged that the Union had withheld payment of the balance of Rs. 12,943.89 P. on the plea that an amount of Rs. 10,625 was due to the Union under another contract between the parties for a bulk purchase order No. PBI/7028-705, dated 16/12/1949. The Company submitted that there was no such contract and the dispute raised in that behalf by the Union had been referred to the arbitration of the Officer on Special Duty, Directorate-General of Supplies and Disposals and Shri Ramniwas Agrawala but had since been adjourned sine die by the arbitrators.

(2.) THE Union by petition, dated 19/05/1959 applied under Section 34 of the Indian Arbitration Act for stay of the suit alleging that a dispute had arisen between the parties and there being an arbitration agreement which could be invoked under the circumstances and the Union being ready and willing to do all things necessary for the proper conduct of the arbitration under Cl. 21 contained in form No. WSB-133. THE Company resisted the petition contending that there was no dispute concerning the contract which was covered by any valid submission or arbitration clause and which attracted the application of' S. 34 of the Arbitration Act. THE Subordinate Judge held that before S. 34 could be invoked the suit must raise dispute in respect of the matter agreed to be referred to arbitration and not independent of it and as no dispute was raised by the Union about its liability to pay the amount claimed by the Company arising under the contract and the only dispute which was sought to be raised was in respect of the liability of the Company under another contract, the suit could not be stayed. An appeal against the order refusing to stay the suit was dismissed in limine by the High Court of Punjab. With special leave, the Union has appealed to this Court.

(3.) IT was urged that mere refusal by the Union to pay the amount due is sufficient to raise a dispute "in connection with the contract" within the meaning of Cl. 21 of the Arbitration agreement. We are unable to agree with that contention. A dispute that the Union is not liable to pay the price under the terms of the contract is undoubtedly a dispute under the contract, and in any event in connection with the contract. But a plea that the Union though liable to pay the amount under the terms of the contract will not pay it because it desires to appropriate it towards another claim under another independent contract cannot reasonably be regarded as a dispute "under or in connection" with that contract under which the liability sought to be enforced has arisen.