A valid arbitration agreement exists even if dispute involves allegations of mutual mistake or contract illegality, provided the parties adhered to prior permissions and licensing requirements.

1. This is an appeal from a judgment and order passed by Mr. Justice Salil Kumar Roychoudhury on 11th of February, 1981 granting the stay asked for and directing the parties to take immediate steps for initiation of the reference under the arbitration agreement contained in the contract mentioned in the plaint. The judgment was passed on an application under S.34 of the Arbitration Act, 1940 for stay of Suit No.736 of 1978 instituted by I.T.C. Ltd. v. G.J. Fernandez. Before I refer to the relevant averments in the plaint it will be important to understand the background under which this application came to be made. The suit was filed on 29th of September, 1978 by the Charterer, for a declaration that the contract and modifications mentioned in the plaint were void and illegal and a decree for Rs.39,64,341/- or an enquiry as to what amount was due to the plaintiff. In that suit instituted by I.T.C. Limited there were two defendants namely, G.J. Fernandez who was defendant No.1 and secondly, Canara Bank, defendant No.2. George Joseph Fernandez being the defendant No.1 made an application on 24th of April, 1979. George Joseph Fernandez was the absolute owner of two fishing Trawlers Avemaria I and Ave Maria registered under Nos.1567 and 1568 dated the 30th of January, 1974 with the Registrar of Indian Ships, Cochin. The said trawlers were imported by the said petitioner under an import licence No. P / CG / 2062299 dated 3rd of March, 1971. As good deal of arguments were advanced on the conditions of licence it would be relevant to refer to some of the relevant Provisions of the licence. The licence was headed "Industry Processed Food (Fishing)". Under Column No.2 the description and quality of the goods were indicated as two Nos. of fishing trawlers as per list. The approximate value of CIF was stated to be Rs.23,55,000/- only. The period of shipment was indicated 12 months the date of issue and revalidated up to 6th of January, 1973. The licence was granted, under Govt. of India, Ministry of Commerce and Industry Order No.17/55 dated 7th of December, 1955 as subsequently amended, issued under the Import and Export Control Act, 1947 and was without prejudice to the application of any other prohibition or regulation affecting the importation of the goods which might be enforced at the time of their arrival. In the instruction columns it was stated that the provision which was inapplicable should be struck off. It was further stated that the licence was issued from file No. CGIII / 25/143/71. In column I which was not struck off, indicated as follows: -
"(i) This licence is issued with an initial validity period of twelve twenty - four months from the date of issue. It will be revalidated at or before the end of the said period of twelve twenty - four, months, for a further period of two - one year(s), upon request provided the licensing authority is satisfied that a firm order has been placed on and accepted by the foreign supplier but shipment could not be effected within the initial validity period of the licence. Normally the validity period will not be extended beyond three years from the date of issue.
(ii) This licence will be subject to the conditions in force relating to the goods covered by the licence, as described in the relevant import Trade Control Policy Book, or any amendment thereof made up to, and including, the date of issue of the licence, unless otherwise specified.
(iii) It is also the condition of this licence that: -
(a) where an irrevocable letter of credit is opened by the holder of licence to finance the import of any goods covered thereby, then the authorised dealer in foreign exchange through