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HIGH COURT OF CALCUTTA
B. C. MITRA, A. K. BASU
THE CHARTERED BANK - Appellant
Versus
COMMISSIONER FOR THE PORT OF CALCUTTA - Respondent
A. F. O. O. 99 Of 1969, Award Case No. 14 Of 1968
Decided On : NOVEMBER 22, 1971
ARBITRATION - Stay of suit - Contract of Guarantee - Arbitration clause - Scope and effect - Disputes agreed to be referred - Jurisdiction of Arbitrator - Whether dispute raised in plaint is within the ambit of the arbitration agreement - Whether appellant is entitled to a discretionary order for stay of suit - Principles governing grant of stay under Section 34 of the Arbitration Act, 1940.
Fact of the Case:
Respondent instituted a suit against appellant for recovery of Rs. 7,35,000/- and other reliefs based on a contract for supply of 2 barges and 2 Deeds of Guarantee executed by appellant guaranteeing due performance and observance of the contract by the company. Appellant applied for stay of the suit under Section 34 of the Arbitration Act, 1940, contending that the contract containing the arbitration clause never came into being and there was no binding contract between the parties. Trial Court dismissed the application.
Finding of the Court:
The arbitration agreement in this case is limited to 2 clearly defined and limited disputes, namely: (1) If any sum has become payable by the company to the respondent and (2) if the company is guilty of breach or non-performance of the said contract or of negligence or omission to perform the same. The Arbitrator therefore has no jurisdiction to adjudicate upon any dispute other than those two. The suit which is sought to be stayed is a suit by the respondent against the Bank to enforce its claim. Looking at the plaint, there can be no doubt that the dispute in the suit is altogether outside the ambit of the terms of reference. In other words, the scope of the suit, as it appears from the plaint, is entirely outside the disputes agreed to be referred to the Arbitrator.
Issues: 1. Whether the appellant is entitled to an order for stay of the suit under Section 34 of the Arbitration Act, 1940? 2. Whether the existence and validity of the contract of Guarantee was challenged by the appellant? 3. Whether the appellant was ready and willing to go to arbitration at the commencement of the proceedings?
Ratio Decidendi: 1. The existence, the binding effect and the enforceability of the Guarantee agreement has been challenged by the appellant in the correspondence that passed between the parties. The appellant's contention, that the terms of the guarantee agreement never became operative so as to bind the parties and the contention that the contract had been superseded, are in my view outright repudiation of the contract. 2. The arbitration agreement in this case is limited to 2 clearly defined and limited disputes, namely: (1) If any sum has become payable by the company to the respondent and (2) if the company is guilty of breach or non-performance of the said contract or of negligence or omission to perform the same. The Arbitrator therefore has no jurisdiction to adjudicate upon any dispute other than those two. The suit which is sought to be stayed is a suit by the respondent against the Bank to enforce its claim. Looking at the plaint, there can be no doubt that the dispute in the suit is altogether outside the ambit of the terms of reference. In other words, the scope of the suit, as it appears from the plaint, is entirely outside the disputes agreed to be referred to the Arbitrator. 3. The appellant was not ready and willing to go to arbitration at the commencement of the proceedings, as evidenced by the correspondence relied on in the affidavit-in-reply.
Final Decision: Appeal dismissed.
( 1 ) THE respondent instituted Suit No. 2556 of 1967. (The Commissioners for the Port of Calcutta v. The Chartered Bank) for recovery of Rs. 7,35,000/- and for other reliefs. The basis of the respondent's claim is that on or about May 5, 1965. it was agreed between the respondent and a British Company known as Blyth Dry Docks Shipping Building Co. Ltd. (hereinafter referred to as the Company) that the Company would build and deliver to the respondent 2 Hopper Barges at a price of 3,50,000/-each aggregating 7,00,000/ -. In consideration of the contract the appellant by two several Deeds of Guarantee dated 7-6-1966 guaranteed the due performance and observance by the company of all the covenants and conditions of the said contract for supply of Barges and promised to pay on demand 17,500/- in respect of each of the said two Barges in the event of a breach or non-performance of the contract or in the event of any neglect or omission by the company. Pursuant to the said contract for the supply of the 2 Barges the respondent from time to time paid divers sums to the company aggregating 1,75,000/ -.
( 2 ) ON or about September 13, 1966. the company went into voluntary liquidation without completing, constructing or delivering the said 2 Barges or any of them. The respondent contends that the appellant failed to pay 35,000/-under the said 2 guarantees or any portion thereof.
( 3 ) ON or about November 29, 1967, the appellant was served with the writ of Summons in the said Suit No. 2556 of 1967. The appellant entered appearance in the Suit and on January 5, 1968. took out a notice of motion for stay of the Suit and all proceedings thereunder. This application was disposed of by the trial Court by a judgment and order of May 12, 1969, by which the application for stay of the suit was dismissed. This appeal is directed against the judgment and order dated May 12, 1969.
( 4 ) BEFORE proceeding to deal with the contentions of the parties I should refer to the correspondence that passed between the parties in the matter of their rival contentions under the contract. On December 20, 1966, the respondent wrote to the appellant to say that the company had failed to carry out the contract, and that the Guarantee furnished by the appellant had become enforceable. The appellant was therefore called upon to pay Rs. 3,50,000/- under the two Deeds of Guarantee within 15 days. On January 28, 1967. the appellant wrote to the respondent that no formal contract was signed by the respondent and the company, and as no such contract had in fact been signed, the terms of the Guarantees were not operative, and therefore there could be no effective claim under the Guarantees. On March 2, 1967, the appellant wrote to the respondent that a contract existed between the respondent and the company when the tender was accepted. on the understanding that when a formal contract was signed, it would govern what was being done meanwhile, and that the final contract which was to be signed by the parties was concluded at the latest on July 27, 1966. In paragraph 3 of this letter the appellant alleged that as the Guarantee was given in respect of a contract which arose out of the tender and acceptance and not the concluded contract between the parties the contract of guarantee had been superseded and no longer applied. There were several other contentions raised in this letter to which it is not necessary to refer. On April 26, 1967. the appellant forwarded to the respondent a memorandum raising various contentions namely:-- (a) A tender was accepted by the company which was to be embodied in a formal contract a pro forma of which was included in the tender documents. (b) The contract came into existence when the tender was accepted and such acceptance was on the understanding that if a formal contract was signed it would govern what was being done meanwhile. (c) The tender and acceptance constituted a tentative contract. (d) The concluded contract w
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