Bye-laws of an association can be incorporated into a contract by reference, and can provide for arbitration of disputes arising out of the contract, even if the parties to the contract are not members of the association.

Headnote:
ARBITRATION - BYE-LAWS OF EAST INDIA COTTON ASSOCIATION LTD. - INCORPORATION INTO CONTRACT - CONSTRUCTION OF BYE-LAW 38(A) - APPLICABILITY TO NON-MEMBERS - EXISTENCE OF ARBITRATION AGREEMENT.
Fact of the Case:

The appellants and respondents entered into a contract for the sale and purchase of cotton, subject to the bye-laws of the East India Cotton Association Ltd. (E.I.C.A. Ltd.). Disputes arose between the parties, and the respondents applied to the court for an order directing that the contract be filed in court under Section 20 of the Arbitration Act, 1940, and that all disputes be referred to arbitration in accordance with the bye-laws of the E.I.C.A. Ltd.
Finding of the Court:

The court held that there was a valid arbitration agreement between the parties, incorporated into the contract by reference to the bye-laws of the E.I.C.A. Ltd. The court found that Bye-law 38(A) of the E.I.C.A. Ltd.'s bye-laws, which provided for arbitration of disputes arising out of cotton contracts, was applicable to the present case, even though both parties were non-members of the E.I.C.A. Ltd. The court interpreted Bye-law 38(A) to mean that any cotton contract that was subject to the bye-laws of the E.I.C.A. Ltd. or that contained an arbitration agreement to that effect would be covered by the arbitration provisions of the bye-laws.
Issues: Whether there was a valid arbitration agreement between the parties.
Ratio Decidendi: The court held that the bye-laws of the E.I.C.A. Ltd. were incorporated into the contract between the parties by reference, and that Bye-law 38(A) of the bye-laws provided for arbitration of disputes arising out of cotton contracts, including those between non-members. The court interpreted the words "cotton contracts covered by any such arbitration agreement" in Bye-law 38(A)(e) to mean that any cotton contract that was subject to the bye-laws of the E.I.C.A. Ltd. or that contained an arbitration agreement to that effect would be covered by the arbitration provisions of the bye-laws.
Final Decision: The court dismissed the appeal and confirmed the judgment and order of the lower court, which had directed that the contract be filed in court and that all disputes be referred to arbitration in accordance with the bye-laws of the E.I.C.A. Ltd.

Mody, J.

JUDGMENT - 1. This is an appeal against the Judgment and Order of Madon, J. dated 26th February 1968 granting the respondents application and directing that the Contract dated 9th December 1964 between the appellants and the respondents be filed in Court under Section 20 of the Arbitration Act, 1940 and that all disputes arising between the parties, including the claim of the respondents against the appellants under and in respect of the said contract be referred to arbitration according to the bye-laws of the East India Cotton Association Ltd. so that the necessary steps under the said bye-laws may be taken to have the said disputes settled by arbitration as provided by the said bye-laws, the East India Cotton Association Ltd. is herienafter referred to as "E. I. C.A. Ltd.".

2.By that Contract the respondents agreed to sell to the appellants and the appellant agreed to buy from the respondents 200 bales if Egyptian cotton to be shipped during January / February 1965 on certain terms and conditions contained in that Contract. One of the terms of the Contract provides :-

"This contract is subject to the bye-laws of the East India Cotton Association Ltd., Bombay ......."

3.The respondents thereafter contended that the appellants committed certain defaults and a breach of the Contract and claimed on that basis a certain amount from the appellants. Thereafter the respondents claimed that the disputes between the parties be referred to arbitration in accordance with the bye-laws of the E.I.C.A. Ltd. The appellants contended that there was no agreement between the parties providing any express term for a reference of those disputes to arbitration. They further contended that although the said term in the Contract made it subject to the bye-laws of the E.I.C.A. Ltd. there was no provision in the bye-laws providing for arbitration which was applicable to the said disputes between the parties as both the appellants and the respondents were not members of the E.I.C.A. Ltd. The respondents thereupon filed an application by way of a Petition, which was numbered as a suit, being Arbitration Suit No. 224 of 1966. In defence, the appellant raised various contentions. At the hearing before Madon. J., however, the appellants gave up all their contentions except one. The appellants conceded, firstly, that the said Contract was a valid contract; secondly, that the said Contract was a "cotton contract"; thirdly, that the said disputes between the parties arose out of and were in relation to the said Cotton Contract; fourthly, that the bye-laws of the E. I. C. A. Ltd. got incorporated into the said Contract; and fifthly, that both the appellants and the respondents were not members of the E. I. C. A. Ltd. Therefore the only dispute which remained for determination was the appellants contention that there was no Arbitration Agreement between the parties contained in the said Contract dated 9th December 1964. The learned Judge, therefore, raised only one issue, namely:

"Whether there is any arbitration agreement between the Petitioners and the Respondents contained in the contract between them dated 9th December 1964 as alleged by the Petitioners in para 7 of the Petition".

The learned Judge negatived the appellants contention and answered the said issue in the affirmative. The appellants have therefore filed this appeal.

4.There is no dispute that the bye-laws of the E. I. C. A. Ltd. have become incorporated into the said Contract. The appellants contention, however, is that only such bye-laws as are capable of applying to the said Contract and the disputes between the parties can apply. There is no dispute that there are several provisions in the bye-laws which provide for arbitration. The only dispute is whether any of such provisions about arbitration is applicable to the present case.

5.Bye-law 36 provides for Arbitrations and Appeals in disputes as to quality. Its provisions are not relevant in this case except for understanding and interpret

Click Here to Read the rest of this document