Judgment

SHAH, J..: The Birla Cotton Spinning and Weaving Mills Ltd.-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 January 30, 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 October 12, 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 December 16, 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 May 19, 1959 applied under S. 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. The only contention raised in the appeal is that the terms of the arbitration agreement include a dispute relating to a refusal to meet the obligations arising under the contract ever though the refusal was not founded on any right arising under the terms of the contract. The arbitration agreement is contained in C1. 21, which in so far as it is material provides :

"In the event of any question or dispute arising under these conditions or any special conditions of contract or in connection with this contract (except as to any matters the decision of which is specially provided for by these conditions) the same shall be referred to the award of an arbitrator to be nominated by the Purchaser and an arbitrator to be nominated by the Contractor, or in case of the said arbitrators not agreeing then to the award of an Umpire to be appointed by the arbitrators in writing before proceeding on the reference and the decision of the arbitrators, or in the event of their not agreeing, of the Umpire appointed by them shall be final and conclusive and the provisions of the Indian Arbitration Act, 1940, and of the Rules thereunder and any Statutory modification thereof shall be deemed to apply to and be incorporated in this contract."

The arbitration clause is wide and includes not only disputes arising under the covenants of the contract but also to disputes under conditions general or special or in connection with the contract. But before an order for stay of a proceeding may be made under S. 34 of the Arbitration Act, the following conditions must