( 1 ) THIS Civil Miscellaneous Appeal is preferred against an order of the learned Subordinate Judge, Adoni, refusing to stay the suit under S. 34 of the Arbitration Act. Defendant is the appellant.

( 2 ) PLAINTIFF is a firm dealing in cotton at Adoni. The defendant is a Mill at Coimbatore. Whenever the defendant required cotton, it placed an order with the plaintiff which supplied cotton on payment. On 27-12-1985 the defendant requested the plaintiff to despatch cotton bales discounting the Hundis with Lakshmi Vilas Bank, at Adoni, and present the documents for payment through the State Bank of India, Coimbatore. Accordingly, the plaintiff sent 150 bales on 8-1-1986 in respect of which he drew six Hundis for Rs. 4,22,000/- in the name of the Carrier and discounted them through Lakshmi Vilas bank, Adoni, instructing the Bank to present the Hundis to the State Bank of India, Coimbatore. Another 50 bales were despatched on 16-1-1986, valued at Rs. 1,40,000/-, following the same procedure with respect to Hundis. On 29-4-1986 the defendant released one Hundi for Rs. 60,000/- the remaining Hundis were returned on 12-5-1986. Thereupon the plaintiff called upon the defendant to make the payment the defendant requested the plaintiff to instruct its bankers at Coimbatore to retain the documents for some more time for clearance but, in spite of waiting for the period requested, the defendant did not make the payment. The plaintiff wrote to the defendant on 29-4-1986 to send certain quantity of yarn by discounting the Hundis in favour of the plaintiff, and also to clear the pending cotton Hundis with them. The defendant sent 25 bales of cotton yarn, the value whereof in a sum of Rs. 80,000/- was adjusted by the plaintiff towards arrears relating to the previous cotton transactions as per the understanding between them. The defendant sent another 97 bales of cotton yarn, but the plaintiff refused to take delivery thereof because of the defendant s conduct. On 11-6-1986 the defendant issued 20 cheques, each in a sum of Rs. 20,000/- totaling Rs. 4,00,000/ -. On presentation, only eight cheques were honoured, and the rest dishonoured. The defendant made a further payment of Rs. 20,000/- later by a Bank Demand Draft. Thus the defendant paid a total sum of Rs. 1,80,000/- in addition to Rs. 69,000/- as against the total amount due in a sum of Rs. 5,62,000/ -. The balance amount Rs. 3,13,000/- remained unpaid, whereupon the plaintiff issued a telegraphic notice and instituted a suit for Rs. 3,56,24323 ps. An attachment was taken out of the defendant s accounts in certain Banks.

( 3 ) THE defendant appeared and filed a petition under Sec. 34 of the Arbitration Act requesting for stay of the suit in view of the agreement between the parties to refer their disputes to arbitration. The defendant contended that, according to the Order Forms/agreement between the parties, the transactions between them shall be subject to the bye-laws of the East India Cotton Association, and that any disputes between them should be referred to arbitration as contemplated by the bye-laws of the said Association. In that view, it was submitted that the suit should not be allowed to go on. The defendant raised certain further pleas. They are : (i) a sum of Rs. 2,22,459. 29 Ps. is due to the defendant from the plaintiff in respect of earlier transactions. The same represents the excess payment made by the defendant to the plaintiff; (ii) the sum of Rs. 80,000/- being the value of 25 bales of cotton yarn ought to have been adjusted against the suit amount. Since there are no arrears in respect of earlier transactions, there is no question of the plaintiff adjusting this amount against the arrears relating to earlier transactions; (iii) that, at the plaintiff s request the defendant sent 97 bales of cotton yarn, which the plaintiff refused to take delivery and thereby committed a breach of contract. The defendant is entitled to damages on this account; and