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IN THE HIGH COURT OF ALLAHABAD
M. C. Desai and J. N. Takru, JJ.
MUNICIPAL BOARD - Appellant
Versus
EASTERN U.P.ELECTRIC SUPPLY CO.LTD. - Respondents
Civil Revn. 1290 Of 1951
Decided On : 12/12/1957
ARBITRATION - AGREEMENT - FRUSTRATION - EFFECT ON ARBITRATION CLAUSE - JURISDICTION OF COURT TO DECIDE WHETHER ARBITRATION AGREEMENT SUBSISTS - SECTION 33 OF THE ARBITRATION ACT, 1940.
Fact of the Case:
The Eastern U.P. Electric Supply Company Ltd. (Company) and the Municipal Board of Ghazipur (Board) entered into an agreement on 25-2-1939, whereby the Company undertook to supply electric energy to the Board for street lighting and running its Water Works. The agreement contained an arbitration clause (Clause 13). Due to World War II, the Company faced difficulties in supplying energy at the agreed rate and the parties executed an interim agreement on 1-10-1944, which contained a similar arbitration clause (Clause 11). Disputes arose between the parties during the subsistence of the interim agreement, and the Company applied to the District Magistrate to refer the matter to arbitration under Clause 11. The District Magistrate did not take any action, and the Board referred the dispute to arbitration under Clause 13 of the original agreement. The Company objected, claiming that the original agreement had become void due to frustration and the arbitration clause had ceased to exist. The Company filed an application under Section 33 of the Indian Arbitration Act, 1940, seeking a determination of the existence, validity, and effect of the arbitration agreement.
Finding of the Court:
The court held that the application under Section 33 was within the pecuniary jurisdiction of the court. It further held that the arbitration clause remained operative even if the contract was frustrated, as the question of whether the contract was frustrated or not was itself a dispute that arose under the contract and had to be referred to arbitration. The court also held that the Munsif had jurisdiction to entertain the application and decide whether the arbitration agreement was operative and effective or not, as such questions were barred from being decided by a suit and could only be determined through an application under Section 33.
Issues: 1. Whether the application under Section 33 of the Arbitration Act was beyond the pecuniary jurisdiction of the court? 2. Whether the contract between the parties was frustrated? 3. Whether even if the contract was frustrated, the arbitration clause remained operative? 4. Whether the question of whether the contract was frustrated or not was a dispute that arose under the contract and could be decided only by the arbitrator under the arbitration clause? 5. Whether the Munsif had committed an error of jurisdiction in deciding that the arbitration agreement had ceased to exist.
Ratio Decidendi: 1. The court held that the application under Section 33 was within the pecuniary jurisdiction of the court, as the Company was entitled to put its own valuation on the relief sought, which was a declaratory relief seeking to have the existence and validity of the arbitration clause determined. 2. The court held that the arbitration clause remained operative even if the contract was frustrated, as the question of whether the contract was frustrated or not was itself a dispute that arose under the contract and had to be referred to arbitration. 3. The court held that the Munsif had jurisdiction to entertain the application and decide whether the arbitration agreement was operative and effective or not, as such questions were barred from being decided by a suit and could only be determined through an application under Section 33.
Final Decision: The court dismissed the revision application with costs.
( 1 ) THIS is a revision application under Section 115 Civil Procedure Code and is directed against an order of the learned Munsif of Ghazipur dated 14th September, 1951, whereby he allowed the application made by the opposite party under section 33 of the Indian Arbitration Act, "1940.
( 2 ) THE facts giving rise to the aforesaid revision may be briefly stated as follows: the parties to the dispute are the Eastern U. P. Electric Supply Company Ltd. , Ghazipur and the municipal Board of Ghazipur which we shall, for the sake of convenience hereinafter refer to as the Company and the Board respectively. On 30-5-1949 the Company filed an application supported by an affidavit under Section 33 of the Indian Arbitration Act, 1940 before the learned munsif of Ghazipur, to which the Board, the District Magistrate, Ghazipur and the Electric inspector to the Government of United Provinces were made opposite parties. The application stated that the Company and the Board had entered into an agreement on 25-2-1939 by which the former undertook to supply electric energy to the latter for street lighting as well as for running its Water Works -- the rate stipulated for supplying energy for the water Works was 131/2 pies per unit, the Board guaranteeing a minimum consumption of 50,000 units per year. The agreement also contained an arbitration clause, being Clause (13), the material portion of which laid down that,
"if and whenever any doubt, difference or dispute shall hereinafter arise in respect of this agreement. . . . . the matter in dispute shall be referred to a committee of arbitration consisting of the District Magistrate Ghazipur, the Electric Inspector to the Government of United Provinces, the Administrator or Chairman Municipal Board as the case may be, or their nominee, a representative of the Company, presided over by the District Magistrate of Ghazipur and the decision arrived at by such Committee of arbitration shall be final and binding on both the parties and shall be an award within the meaning of the Indian Arbitration Act, 1899, or any statutory amendment thereof for the time being in force. . . . . "
( 3 ) APPARENTLY no period had been fixed within which the Company had to commence the supply of energy, whether for street lighting or for the Water Works. The Company however installed some machinery and started supplying energy for street lighting from 15-7-1942. As for the water Works the Board had been working them with Oil Engines but as a result of a breakdown in 1943 they were also connected with the electric mains of the Company, and the Company started supplying energy to the Water Works also. The Company, however, realised soon afterwards that it could not supply energy to the Board for running its Water Works at the rate of 13 1/2 pies per unit as the said rate was very low having regard to the fact that due to World War II the prices of all the commodities had risen very high-- a contingency which was not and could not be within the contemplation of the parties on the date of agreement. The Company, therefore, wrote to the Board that the said agreement relating to the Water Works had become void and inoperative in law as its performance had become impossible. The Board thereupon agreed to suspend the agreement dated 25-2-1939, and to execute a new one in lieu thereof; and a new agreement to that effect, which shall be referred to hereinafter as the Interim agreement, was executed on 1-10-1944 whereby the Board agreed to run its Water works with its own Oil Engines during the period of that interim agreement and to use electric energy only in case of accident or failure of the said Oil Engines. The Interim agreement also contained an arbitration clause, Clause (ii) similar in its terms to those of Clause (13) of the original agreement. Disputes having arisen between the parties during the subsistence of the interim agreement with regard to the payment of the Companys bills for current supplied to
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