Judgment

SHAH, J. The question which falls to be determined in this appeal with certificate granted by the High Court of Bombay against an order refusing a motion for stay of a suit, is :

"Whether an agreement to refer a future dispute to arbitration according to the rules of the International Chamber of Commerce between a Company registered under the Indian companies Act and a foreigner is binding upon the former."

2. The facts which give rise to this question are these : Socite De Traction Et D Electricite Societe Anonyme - hereinafter called, for the sake of brevity, Traction - is a Corporation incorporated under the laws of Belgium and carries on business as consulting and construction engineers at Brussels. The respondent Kamani Engineering Corporation Ltd. - herein-after called Kamani - is a company registered under the Indian Companies Act, 1913. Kamani carries on business, amongst others, as an engineering concern. On April 22, 1959 Kamani entered into a Collaboration agreement with Traction whereby the latter undertook to provide to Kamani technical assistance for the construction of overhead railway electrification, tramway systems and trolley buses in India, Burma, Ceylon and /or Nepal. The agreement contained an arbitration clause in Article X, which provided :

"All disputes arising in connection with this agreement during the period of the agreement or thereafter shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the Rules of the said International Chamber of Commerce".

3. On September 1, 1961 Kamani instituted suit No. 296 of 1961 in the High Court of Judicature at Bombay on its original side, inter alia for-

(1) a decree declaring that Traction had committed diverse breaches of the Collaboration agreement and the agreement was on that account terminated by Traction, and Kamani stood discharged from all its obligations thereunder

(2) a decree for accounts of the items contained in the invoice referred to in paragraph 24 and 25 of the plaint and for ascertainment of the amount in the light of the contentions and submissions set out.

(3) for decree directing Traction to pay Rs. 9,00,000/- together with interest thereon at the rate of six per cent per annum from the date of the suit; and

(4) for the aforesaid purposes for an order that all enquiries be made, directions given, orders passed and Traction be directed to hand over to Kamani all documents, files, reports, correspondence etc., removed by the representatives of the Traction.

On January 22, 1962 Traction took out a notice of motion for an "order staying the proceedings in the suit pursuant to S. 3 of the Arbitration (Protocol and Convention) Act, 1937, and /or S. 34 of the Arbitration Act, 1940 and /or S. 151 of the Code of Civil Procedure, 1908 and /or the inherent powers of the High Court"; in the alternative for an order that Kamani, its servants and agents be restrained by an order and injunction from in any manner proceeding further with or from taking any further steps in the suit. Kantawalla, J., refused the motion and the order passed by him was confirmed in appeal by the High Court. The High Court held that the arbitration clause of the collaboration agreement was invalid, for it obliged Kamani, contrary to S. 389 of the Indian Companies Act, 1956, to go to arbitration otherwise than in accordance with the Arbitration Act X of 1940.

4. The relevant rules of the International Chamber of Commerce may be summarised. Article 7 provides by cl. (1) that the Court of Arbitration does not itself settle disputes except when otherwise stipulated : it appoints or confirms the nomination of arbitrators in accordance with the provisions following. If the parties have agreed to the settlement of a dispute by a sole arbitrator they may nominate him by common agreement for confirmation by the Court of Arbitration; failing agreement between the partie