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HIGH COURT OF CALCUTTA
D. N. Sinha
SHREE BAJRANG JUTE MILLS LTD. - Appellant
Versus
FULCHAND KANHAIYALAL CO. - Respondent
Award Case 390 Of 1961
Decided On : MAY 10, 1962
ARBITRATION - Stay of suit - Arbitration agreement - Existence and validity - Challenge - Application under Section 33 of the Arbitration Act, 1940 - Decision - Subsequent suit on same grounds - Maintainability - Res judicata - Forward Contracts (Regulation) Act, 1952 - Applicability to Calcutta - Notifications dated 29th April, 1953 and 29th March, 1958 - Withdrawal of effect from Calcutta - Exemption of transferable specific delivery contracts in respect of import of jute into India from the operation of the Act - East India Jute and Hessian Exchange - Membership - Licensed broker - Failure to raise points in application under Section 33 - Subsequent suit - Maintainability.
Fact of the Case:
The buyer and seller entered into a contract for the sale and purchase of jute. The contract contained an arbitration clause. The seller failed to deliver the goods and the buyer referred the dispute to arbitration. The seller challenged the existence and validity of the arbitration agreement and filed an application under Section 33 of the Arbitration Act, 1940. The application was dismissed. The seller then filed a suit challenging the contract and the arbitration agreement on the same grounds as in the application under Section 33. The buyer filed an application for stay of the suit under Section 34 of the Arbitration Act, 1940.
Finding of the Court:
The court held that the suit was not maintainable. The court held that the seller was not entitled to challenge the existence and validity of the arbitration agreement in the suit as the same had already been decided in the application under Section 33. The court also held that the points raised in the suit should have been raised in the application under Section 33 and could not be reagitated in the suit. The court further held that the suit was frivolous and vexatious and was intended to delay and defeat the arbitration proceedings.
Issues: 1. Whether the suit was maintainable in view of the decision in the application under Section 33 of the Arbitration Act, 1940? 2. Whether the points raised in the suit should have been raised in the application under Section 33 and could be reagitated in the suit? 3. Whether the suit was frivolous and vexatious and was intended to delay and defeat the arbitration proceedings?
Ratio Decidendi: 1. The court held that the suit was not maintainable in view of the decision in the application under Section 33 of the Arbitration Act, 1940. The court held that the seller was not entitled to challenge the existence and validity of the arbitration agreement in the suit as the same had already been decided in the application under Section 33. The court relied on the decision of the Supreme Court in Jawahar Lal Barman v. Union of India, where it was held that an application under Section 33 of the Arbitration Act, 1940 could be made by a party challenging the existence or validity of an arbitration agreement, and that such a party could not make an application for adjudication of the existence and validity of an arbitration agreement if the existence of the arbitration agreement was not in dispute. 2. The court held that the points raised in the suit should have been raised in the application under Section 33 and could not be reagitated in the suit. The court held that it was incumbent upon the seller to rely on all the existing grounds which it had for challenging the contract or establishing its invalidity in the application under Section 33, and that it could not make such an application by instalments. The court relied on the decision of the Calcutta High Court in Kharda Co. Ltd. v. Morgan Walker and Co., where it was held that a ground which was not taken in a previous application under Section 33 could not be agitated in a second application under that section. 3. The court held that the suit was frivolous and vexatious and was intended to delay and defeat the arbitration proceedings. The court held that the seller had already challenged the existence and validity of the arbitration agreement in the application under Section 33 and that the points raised in the suit were virtually the same as the grounds made out in the application under Section 33. The court also held that the seller had not raised the points in the application under Section 33 which were raised in the suit, and that the suit was therefore an attempt to postpone the evil day and to obstruct the arbitration proceedings.
Final Decision: The court allowed the application for stay of the suit and stayed the suit so far as the petitioner and respondent No. 1 were concerned.
( 1 ) THE facts in this case are shortly as follows : Shree Bajrang Jute Mills Ltd. (hereinafter referred to as the 'buyer') and Messrs. Fulchand Kanhaiyalal (hereinafter referred to as the 'seller') entered into a contract, dated the 5th August 1960 (No. 119) by which the petitioner agreed to buy and the respondent No. 1 agreed to sell to the petitioner, 510 bales of N. C. Cuttings weighing 92534. 40 Kilos, at the rate of Rs. 57/32 np. per hundred Kilos or Rs. 104 per bale, on terms and conditions recorded in a Bought Note passed by the broker, Gopiram Jalan, the respondent No. 2, a copy whereof is annexed to the petition and marked with the letter 'a'. The contract stipulated that shipment was to be during November 1960 Import Licence and letter of authority in favour of the seller to be furnished by the Buyer. It contained the usual arbitration clause by the Bengal Chamber of Commerce. The contract further incorporated the terms and conditions for a transferable Specific Delivery. Contract for raw jute, as laid down by the East India Jute and Hessian Exchange Ltd. Calcutta and subject to the Bye-Laws of that Exchange, for trading in such goods. It is alleged in the petition that the petitioner and both the respondents are members of the said Exchange and that the respondent No. 2 is a licensed broker thereof. The Bye-laws also contain provisions for reference to Arbitration, In terms of the contract, the buyer obtained the necessary import license and forwarded it to the seller and requested them to arrange for import and delivery of the goods. At the request of the seller, the buyer gave several extensions of the due date of delivery, the last of such extension being till February 1961. By letter dated 27th February 1961, the seller again requested the buyer to extend time till 3ist March 1961, which it refused to do. The seller failed to deliver the goods. The buyer thereupon made out a Bill of difference amounting to Rs. 99,960/-, being the difference in price between the contract price and the market rate on the 2oth March 1961, and demanded payment of the said sum. The seller failed to meet the demand. On or about the 8th June 1961, the buyer referred the dispute to the arbitration of the Bengal Chamber of Commerce and Industry, in terms of the arbitration clause in the contract. The seller contended that the contract, as well as the arbitration clause contained therein where void and illegal and contrary to the Forward Contracts (Regulation] Act, 1952 and the bye-laws of the East India Jute and Hessian Exchange Ltd. , Calcutta, and that the arbitrators had no jurisdiction to decide the dispute. The arbitrators however proposed to proceed with the arbitration and a date was fixed for the hearing.
( 2 ) ON or about the 24th July, 1961 the seller made an application before this Court, being Matter No. 257 of 1957 (In the Matter of Arbitration Act 1940 between Fulchand Kanhaiyalal Co. and Shree Bajrang Jute Mills Ltd) requesting the Court (under Section 33 of the Indian Arbitration Act 1940) to adjudicate upon the existence or validity of the arbitration agreement dated 5th August 1960 for a declaration that the said agreement was void, illegal and inoperative and of no effect and for setting aside the same. The seller also asked for revocation of the said agreement and that the Bengal Chamber of Commerce be removed from acting as arbitrator, for interim stay aud other reliefs. I have looked at the petition, used in that application, affirmed on the 24th July 1961, and it can be analysed as follows : Firstly the facts are stated. It is then stated that at the time of the performance of the said contract, abnormal circumstances prevailed in the Law Jute trade, inasmuch as Jute was unobtainable from Pakistan. It was stated that the contract had been frustrated and was rendered impossible of performance, and thus the contract itself came to an end together with the arbitration clause. Next, it was contended
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