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1950 Supreme(All) 365
HIGH COURT OF ALLAHBAD
SANKAR SARAN, BIND BASNI PRASAD, JJ.
Union of India through the Secretary Ministry of Food Government of India
Versus
Firm Vishydha Ghee Vyopar Mandal
F. A. F. O. No. 91 of 1950
Decided On : 22-11-1950
Walter Dutt-for Appellant; J. Sarup-for Respondent.
An arbitration clause in a contract is not binding on a party if it was not signed by all the partners and there is no proof of any usage or custom of trade authorizing one partner to submit a dispute to arbitration.
Headnote:
ARBITRATION - Stay of proceedings - Arbitration agreement - Validity - Implied authority of partner - Usage or custom of trade - Ratification - Scope of arbitration clause - Dispute not falling within purview of clause - Stay refused.
Fact of the Case:
The plaintiff, a partnership firm, entered into a contract with the defendant, the Central Government, for the supply of ghee. The contract contained an arbitration clause providing for the sole arbitration of the Secretary, Government of India, Ministry of Food or his nominee in the event of any dispute arising under the contract. The plaintiff supplied the ghee according to the contract and claimed payment for the same. The defendant refused to pay, alleging that the ghee was adulterated and that the plaintiff had bribed its officers to pass the adulterated ghee as up to the standard. The plaintiff filed a suit for the recovery of the amount due. The defendant applied for a stay of the proceedings under S. 34, Arbitration Act, 1940.
Finding of the Court:
The court held that the arbitration clause in the contract did not bind the plaintiff firm as it was not signed by all the partners and there was no proof of any usage or custom of trade authorizing one partner to submit a dispute to arbitration. The court also held that the dispute did not fall within the purview of the arbitration clause as it involved charges of fraud and corruption against the plaintiff and its officers. The court further held that it was not proper to refer the dispute to arbitration as the plaintiff would not have a right of appeal on questions of fact.
Issues: 1. Whether the arbitration clause in the contract was valid and binding on the plaintiff firm? 2. Whether the dispute fell within the purview of the arbitration clause? 3. Whether it was proper to refer the dispute to arbitration in view of the charges of fraud and corruption against the plaintiff and its officers?
Ratio Decidendi: 1. The court held that the arbitration clause in the contract was not valid and binding on the plaintiff firm as it was not signed by all the partners and there was no proof of any usage or custom of trade authorizing one partner to submit a dispute to arbitration. 2. The court held that the dispute did not fall within the purview of the arbitration clause as it involved charges of fraud and corruption against the plaintiff and its officers. 3. The court held that it was not proper to refer the dispute to arbitration as the plaintiff would not have a right of appeal on questions of fact.
Final Decision: The court dismissed the defendant's appeal and upheld the order of the trial court refusing to stay the proceedings.
Bind Basni Prasad, J. :- This is an appeal from an order dated 20-2-1950, passed by the learned civil Judge of Agra refusing to stay proceedings of a suit on the defendants application under S. 34, Arbitration Act of 1940. The relevant facts are as follows :
2. The plaintiff is a firm registered under the Partnership Act carrying on the business of purchasing and selling ghee. In November 1948, the Government of India invited tenders for the supply of ghee to the armed forces and the plaintiff submitted one. Its tender to supply 2,600 tons of ghee at a total cost of about Rs. 1,31,80,000 was accepted. In February 1949 the Central Government increased the quantity to 3,250 tons at a total cost of about Rs. 1,64,00,000. The acceptance of the plaintiffs tender was contained in a letter with which its enclosures is printed at pp. 29 to 45 of the paper book supplied to us by respondents counsel. Detailed terms and conditions of the contract are contained therein. The plaintiff accepted these terms and conditions by the letter printed at p. 46 of the paper book. It is important to note here that the terms and conditions of the contract communicated by the Central Government, though addressed to the plaintiff firm, were accepted by one of the partners only Ved Prakash Gupta, who styled himself as the authorised representative for the plaintiff firm. One of the terms of the contract related to arbitration and it was contained in Appen. II (printed at p. 42 of the paper book) of the Central Governments letter accepting the tender. It runs as follows :
"In the event of any question or dispute arising under the conditions mentioned in the Tender or the Schedule or appendices annexed thereto or in General conditions of the contract (Supply Department. Form W.S.B. 133) except as to any matter the decision of which is specially provided for by these conditions, the same shall be referred to the sole arbitration of the Secretary, Government of India, Ministry of Food or his nominee within a year from the date of completion of contract. The award of the arbitrator so appointed shall be final and binding on the said parties.
2. This clause does not apply to any matters the decision of which is specially provided for by any conditions applicable to this contract and it shall not be open to either party to refer any such questions or disputes to arbitration unless a specific reference to arbitration is jointly signed by the contractor and the purchaser.
3. The provisions of the Arbitration Act, 1940, and of the rules thereunder and any statutory modification thereof shall be deemed to apply to and be incorporated in this contract.
4. Upon every and any reference as aforesaid the assessment of the costs incidental to the reference and award respectively shall be in the discretion of the sole arbitrator.
5. Work under the contract shall if reasonably possible continue during the arbitration proceedings, and no payment due to or payable by the purchaser shall be withheld on account of such proceedings.
6. The venue of the arbitration proceedings will be the premises of the Food Ministry, New Delhi, or such other place as the sole arbitrator may decide."
3. The plaintiff alleges that it "carried out all the terms of the contract on his part and supplied the entire quantity of ghee according to the contract without any complaint or defeat or rejection and the quality of ghee supplied by him was uniformly found to be according to the prescribed: standard after severe tests of analysis by the defendants officers."
The defendant, viz., the Central Government, made payment of all the bills except two. The plaintiff, therefore, brought a suit for the recovery of Rs. 4,90,423-6-0 the particulars of which as given in the plaint are as follows :
Rs. As. Ps.
1. Bill dated 10-5-1949, for the supply of Milk ghee blended duly supplied by inspection note 1,09,592 13 0
Vide para. 7 of the plaint interest @ 6% per annum 2,356 4 0
2. Bill dated 18-5-1949 for the su
