B. D. Agarwal J. - These connected appeals arise against the orders passed by the II Civil Judge, Kanpur, dated January 24, 1984 and February 4, 1984, in Originals Suit No. 775 of 1983.

The respondent No. 1 is a registered Company engaged in the manufacture of mild steel ingots at Unnao. On December 15, 1982, there was an agreement in writing entered into between the respondents and the appellants for the purpose of iron scrap required as raw-material to manufacture the ingots. The agreement is signed by the Controller of Stores, N.E. Railway, Gorakhpur, for and on behalf of the President of India. In terms of the agreement the respondent was to take delivery of the goods from the appellants on being intimated of the same and upon failure to take delivery the contract was liable to be cancelled and the security forfeited. On December 11, 1982, the respondent 2 (Grindlays Bank) furnished guarantee for a sum Rs. 2,45,680/- on behalf of the respondent 1. The validity period of the agreement is December 15, 1982 to December 14, 1983. The Controller of Stores, N.E. Railway Gorakhpur, wrote to the respondent 2 on December 8, 1983, intimating that the respondent 1 having failed to perform their part under the agreement, the same had been cancelled and asked for the guarantee amount to be encashed in favour of the appellants. The respondent 1 thereupon instituted the suit giving rise to these appeals in the Court of II Civil Judge, Kanpur, on December 12, 1983, claiming permanent injunction to restrain the appellants from seeking encashment of the bank guarantee. An application was made for the appellants before the trial Court for stay of the proceedings the suit under Section 34 of the Arbitration Act. The application was opposed by the respondent 1 and it was rejected on Jan. 24, 1984, with the observation that the agreement having been cancelled by the appellants, he could not seek reference to arbitration. The respondent 1 had also filed an application for grant of temporary injunction, which was opposed by the appellants, but under the order dated February 4, 1984, the trial Court granted injunction restraining the appellants from encashing the bank guarantee.

Aggrieved against the order Jan. 24, 1984, the appellants have preferred First Appeal From Order No. 398 of 1984 under Section 39(1)(v) of the Arbitration Act, 1940, and against the other dated February 4, 1984, granting temporary injunction First Appeal From Order No. 397 of 1984 has been filed under Order 431(r) Civil PC. The appeals were heard together.

Learned counsel for the appellants submitted that the arbitration agreement is not wiped off due to unilateral cancellation of the agreement. It is argued that notwithstanding the demand made by the Controller of Stores, N.E. Railway upon the respondent 2 dated December 8, 1983, to encash in their favour the bank guarantee, the dispute raised by the respondent 1 may still form the subject-matter of reference to arbitration. We find sufficient merit in this contention.

Under the agreement dated December 15, 1982, relied on for the appellants and referred to in the plaint, it is stipulated that in the event of the respondent 1, to take delivery it shall be open to the Controller of Stores N.E. Railway to cancel the sale and profit, the security deposited or resell the material lying unremoved at the risk of the respondent. Clause 27 in so far as material reads :-

"In the event of any question dispute or difference arising under these presents or in connection therewith (except as to any matters the decision of which is specially provided for by these presents) the same shall be referred to the sole arbitration of an Arbitrator appointed by the General Manager, N.E. Railway, Gorakhpur. It will be no objection that the arbitrator is a Government servant, that he had to deal with the matters to which these presents relate or that in the course of his duties as a Government servant he has expressed views on all or any