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High Court Of Calcutta
SABYASACHI MUKHERJI
GENERAL ENTERPRISES - Appellant
Versus
JARDINE HANDERSON LTD - Respondent
Matter 1051 Of 1976
Decided On : 08/17/1977
ARBITRATION - Stay of suit - Contract - Formation - Validity - Arbitration clause - Whether arbitrable - Fraud - Whether allegations of fraud make contract non est - Discretion of Court to stay suit - Factors to be considered.
Fact of the Case:
The plaintiff, Jardine Handerson Ltd., entered into an agreement with the defendant, General Enterprises, for the latter to act as its agent for rendering advisory and technical services to various other companies regarding provident fund, pension fund, gratuity, etc. The agreement contained an arbitration clause providing that any dispute or difference arising between the parties in connection with or arising out of the agreement shall be referred to the Bengal Chamber of Commerce and Industry for arbitration. After the termination of the agreement, General Enterprises claimed commission for the period from 1st April, 1973 to 13th September, 1973, which Jardine Handerson Ltd. refused to pay. General Enterprises then referred the dispute to arbitration. Jardine Handerson Ltd. filed a suit in the Calcutta High Court, alleging that the agreement was procured by fraud and was void or voidable, and seeking, inter alia, rescission of the agreement and a declaration that the alleged contract was void or voidable. The defendants applied for a stay of the suit under Section 34 of the Arbitration Act, 1940.
Finding of the Court:
The Court held that the allegations of fraud made by the plaintiff were sufficient to make the contract non est and that the dispute was therefore not arbitrable under the arbitration clause. The Court also held that, in view of the nature of the suit and the fact that the defendant who was not a party to the arbitration agreement was a necessary and proper party to the suit, it would not be appropriate to exercise its discretion to stay the suit.
Issues: 1. Whether the allegations of fraud made by the plaintiff were sufficient to make the contract non est and thus render the dispute not arbitrable under the arbitration clause? 2. Whether the Court should exercise its discretion to stay the suit, considering the nature of the suit and the fact that the defendant who was not a party to the arbitration agreement was a necessary and proper party to the suit?
Ratio Decidendi: 1. The Court held that the allegations of fraud made by the plaintiff, if true, would make the contract void ab initio and not merely voidable. This is because the allegations went to the root of the formation of the contract and not merely to its performance. Therefore, the dispute was not arbitrable under the arbitration clause, which only applied to disputes arising out of or in connection with the contract. 2. The Court held that, in view of the nature of the suit and the fact that the defendant who was not a party to the arbitration agreement was a necessary and proper party to the suit, it would not be appropriate to exercise its discretion to stay the suit. The Court noted that the defendant who was not a party to the arbitration agreement was the central figure in the alleged fraud and that allowing the stay would have the effect of keeping him away from the proceedings.
Final Decision: The Court dismissed the defendants' application for a stay of the suit.
( 1 ) JARDINE Handerson Ltd. is a company registered under the Companies Act, 1956 having its registered office at No. 4, Clive Row, Calcutta. The said company inter alia, carries on the business of rendering advisory and technical services for remuneration to various other companies regarding the letters' Provident Fund, Pension Fund, Gratuity etc. Mukul Chandra Chakraborty, who is said to be an actuary by qualification, was an assistant and a whole time employee of Jardine Handerson Ltd. His wife, Aparna Chakraborty is said to be holding a Master of Arts degree from the Agra University and is alleged to have the qualification of a widely travelled lady and being on good social terms with the several Managing Directors of companies and their wives. His daughter one Sudershana Chakraborty is said to be a holder of Master's degree from the Cambridge University and is also said to be a widely travelled lady and a good mixer with the several Managing Directors and their wives of several companies in Calcutta and who now is said to be in the educational service of the State of West Bengal. There is another person whose name has to be mentioned and he is one Hoshang Shapwji Cawasji Mehta. He is said to be residing at No. 20, Park Street, Calcutta. He claims that he belongs to the Masonic Lodge and was a Grand Master and that he and Mr. Fordwood who was the Managing Director of M/s. Jardine Handerson Ltd. were both fellow masons belonging to the same Lodge. He protests that he loves Sm. Sudershana Chakraborty 83 his own daughter since his own daughter residing in England. It is necessary to set out the aforesaid background in order to understand the controversy in this case in the application under Section 34 of the Arbitration Act, 1940 for stay of the suit No. 562 of 1976.
( 2 ) IT appears that the said Mukul Chakraborty was a whole time employee of Jardine Handerson Ltd. and was entrusted to look after and supervise the business of rendering advisory and technical services to various other companies regarding pension, provident fund, gratuity etc. as mentioned hereinbefore. It is alleged that some time in Deo. 1970 the said assistant Mukul Chakraborty represented to the appropriate authorities of Jardine Handerson Ltd. that the said assistant needed assistance of an independent agent for the purpose of doing field work, namely--contacting the clients of Jardine Handerson Ltd. in the said business, discussing the nature and extent of the said company's clients' requirements, difficulties felt by the said other companies under the various statutory provisions relating to the provident fund, gratuity, etc. and for the purpose of making report to Jardine Handerson Ltd. upon such matters so that Jardine Handerson Ltd. would be able to render satisfactory service to its clients. It is stated that relying upon the said representations the management of Jardine Handerson Ltd. agreed to appoint a suitable agent for the aforesaid purpose. Thereupon, it is stated that Mukul Chakraborty introduced a firm called General Enterprises, a partnership firm registered under the Indian Partnership Act to Jardine Handerson Ltd. as a firm qualified and competent to act as Jardine Handerson's agent for the said purpose. Upon such introduction an agreement was entered into between Jardine Handerson Ltd. and the said firm General Enterprises on or about the 4th of Dec. 1970 as its agent from 1st of April, 1970. By and under the said agreement in writing dated the 4th Dec. 1970 executed by the applicant Jardine Handerson Ltd. and General Enterprises it was agreed that the said M/s. Jardine Handerson Ltd. would appoint General Enterprises as Agent to further the business of Jardine Handerson Ltd. relating to the advisory and technical services rendered by Jardine Handerson Ltd. to various other companies regarding provident fund, pension fund, gratuity. The agreement though entered into on or about the 4th Dec. 1970 was made effec
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