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Judgment
T. Ramaprasada Rao, C.J.—This appeal is by the unsuccessful defendant in I.A. No. 874 of 1974 in O.S. No. 426 of 1974, on the file of
the Court of the Subordinate Judge of Erode. The respondent-plaintiff filed the suit for recovery of a sum of Rs. 1,63,794 as damages, on the foot
that the appellant-defendant had committed breach of contract, dated 15th January, 1974, to supply 500 full-pressed bales of new crop 797
Dholka or Bavla FAQ, cotton of 1973-1974 season on the terms and conditions contained in the confirmation slip dated 15th January, 1974. The
contract originated in correspondence and the respondent''s case is that it was concluded by a telegram. This is seen from Exhibits B-1 to B-3.
The respondent''s specific case is that he sent the sale confirmation letter to the appellant and that that was the process by which the contract was
concluded. On the strength of such a concluded contract, the respondent-plaintiff was demanding the performance of the same in accordance with
its tenor, which the appellant refused. Obviously the price of cotton which was the subject-matter of the contract, by then rose. The respondent
had therefore to file the suit for the recovery of damages for breach of contract. He relied upon the correspondence ending with Exhibit B-3. The
respondent, prior to the institution of the action, issued a notice Exhibit B-16, calling upon the appellant to perform the contract or to suffer
damages. Exhibit B-18 is the reply by the appellant in which he categorically denied that there was any concluded contract as between himself and
the respondent, as according to him, the respondent had not returned the sale confirmation note duly signed by him in confirmation of the contract
which originated in correspondence. In fact, the specific case of the appellant was that the contract had been cancelled by his letter, dated 1st
February, 1974. It was in those circumstances the respondent had to file the suit for recovery of damages on the strength of the contract and the
breach thereof. No sooner did the respondent file the suit, than the appellant took out u/s 34 of the Arbitration Act an application for the stay of all
proceedings in the suit and for directing the respondent to refer the alleged dispute in the suit to arbitration, in accordance with the rules and
regulations of the East India Cotton Association Ltd., Bombay. The provocation for the appellant to file such an application was that under Exhibit
B-3, which was the sale confirmation, reference is made to the East India Cotton Association Ltd., in the following terms:
We have pleasure to confirm having 3old to you this day subject to the East India Cotton Association''s Rules and Regulations as under:
* * *
Yours faithfully,
for C.A. Galiakotwala and Co. (P.), Ltd.
Sd. (defendant).
Taking advantage of the reliance placed by the respondent on Exhibit B-3, the appellant, notwithstanding his specific stand in Exhibit B18,
raised a plea that the suit was not maintainable and that the dispute should be referred to arbitration in accordance with the contents of Exhibit B-3.
This was negatived by the Court below on more than one ground. Firstly the learned Subordinate Judge thought that the respondent-plaintiff was
not a member of the East India Cotton Association Ltd., and therefore he could not be compelled to submit himself to arbitration in accordance
with the rules and regulations of that Association. Secondly he was of the view that, in case there was a dispute about the existence of an
arbitration agreement, then in accordance with the by-laws of the Association there should be a written agreement between the contesting parties
agreeing to refer the disputed matters to arbitration, and that in the absence of such a written agreement in the instant case the question of referring
the subject-matter of dispute to arbitration did not arise. The third ground on which the learned Subordinate Judge refused to accept the
application for reference to arbitration was that one partner could not bind the firm by his action in unilaterally consenting to refer the matter to
arbitration. It is as against this ultimate decision of the Court below, the present appeal has been filed.
It is enough, for the purpose of this appeal, if we just highlight our attention on the specific stand taken by the appellant prior to coming to Court
with the application u/s 34 of the Arbitration Act. People involved in commerce are expected, like others, to know the dimensions as well as the
limitations of the rights and responsibilities which spring from ordinary and normal trading relations. When a trader is confronted with a specific
basic allegation that there is a contract as between himself and another, who claims the existence of such a contract and if that other person
demands damages from him for breach of contract and for nonperformance of the obligations arising thereunder, then the first reaction of that
person should be either to accept the existence of the contract, or deny it; and, if he accepts the existence of the contract, he should plead the
circumstances under which he should be exonerated from performing his part of the contract. If, on the other hand, in a situation like the one
illustrated above, the other party demands from the person concerned performance of the contract under threat or pain of recovery of damages for
non-performance of the same, and the other person denies the existence of the contract and goes to the extent of saying that, even if there was any
such contract, it had been cancelled, then it would not be open to that person once again to resurrect the situation and plead that there was such a
contract and that contract contains a clause requiring disputes to be referred to arbitration and that therefore that clause to refer disputes to
arbitration should prevail and no civil Court shall entertain such disputes which are to be adjudicated upon by arbitration as provided in the
contract. In the instant case Exhibit B-18 is a complete answer to the application for reference of the disputes to arbitration. In Exhibit B-18 the
appellant took up the specific stand that there was no concluded contract at all as between himself and the respondent and that, in any event, the
so-called contract had been cancelled by his letter, dated 1st February, 1974. This was at a time when the respondent was threatening to come to
Court with a suit for damages on the foot of the breach of the contract. After the filing of the threatened suit it was not open to the appellant to give
a volte-face to his specific stand that there was no concluded contract as between himself and the respondent, and plead that there was such a
contract and on the top Of it ask for a stay of the suit on the ground that there existed, even at the time when he sought for stay of the trial of the
suit u/s 34 of the Arbitration Act, an arbitration agreement which was in force in the eye of law. A person cannot be permitted to approbate and
reprobate. Once he has denied the contract, he cannot soon thereafter, when he is placed in an inconvenient position, give the go-by to his earlier
stand and contend that there is a contract and that that contract includes the arbitration agreement as well. The question is whether in the above
circumstances the appellant can seek for relief u/s 34 of the Arbitration Act.
Even assuming that there is some bona fides in the attitude of the appellant, the answer is provided in Clause 38 of the by-laws of the East India
Cotton Association Ltd., which prevents a person like the appellant from seeking the assistance of the Court for referring the subject-matter of
dispute to arbitration. Clause 38, so far as relevant, provides as follows:
38-A. All unpaid claims whether admitted or not, and all disputes and differences (other than those relating to quality) arising out of or in relation
to-
(a) cotton transactions between members including any dispute as to the existence of such transactions; or
(b) cotton contracts (whether forward or ready, arid whether between members or between a member and a non-member) made subject to these
by-laws or subject to East India Cotton Association arbitration or containing words or abbreviations to a similar effect, including any dispute as to
the existence of such transaction, provided in the latter case the parties had agreed in writing before entering into business relation that any dispute
arising between them out of that agreement or any such transactions that may be entered into including any dispute as to the existence of such
transaction, shall be referred to arbitration under the by-laws of the Association.
It is seen from Clause (b) above that, if there is a dispute as to the existence of a contract or transaction, then it is imperative that the parties who
claim that matters should be arbitrated and not adjudicated upon by civil Court should produce an agreement in writing that such an agreement was
entered into before entering into business relations and that that agreement was for the purpose of referring any dispute arising between them out of
that agreement or any such transaction to arbitration under the by-laws of the Association. The primordial condition, therefore, which would enable
a person like the appellant to seek for the assistance of the Court for stay of the trial of the suit u/s 34 of the Arbitration Act is the existence of an
agreement in writing which would compel the parties to refer the matters in dispute to arbitration. The plea originally was that there was admittedly
no such contract in writing. Even otherwise, we have already referred to Exhibit B-18 wherein the appellant has categorically stated that there was
no contract at all even in the matter of the supply of the goods a was sought to be made out by the respondent. In these circumstances, it is idle for
the appellant to completely give a new look and a new phase to his stand which is hopelessly inconsistent with his earlier definite attitude which
disclosed his mind whereby he denied the existence of the contract. He cannot, therefore, be allowed at a later convenient stage, in order to
subserve his own purpose, to plead that there was such a contract and that the dispute should be referred to arbitration. On the ground that there
was no written agreement to refer the matters in dispute to arbitration, and as there is a dispute about the existence of an agreement to refer the
dispute to arbitration, and a fortiori on the ground that the appellant himself denied the existence of the parent contract, the application for referring
the dispute to arbitration u/s 34 of the Arbitration Act and for staying the trial of the suit is a misconceived one and has therefore been rightly
dismissed by the Court below.
It is unnecessary for us to go into the other two questions. Even otherwise, we agree with the Court below that the implied authority of a partner
does not empower him to submit a dispute relating to the business of the firm to arbitration. In the instant case one of the partners of the
respondent firm alone has signed Exhibit B-3 and there is no proof that he had otherwise power to commit the firm to arbitration by his sole
participation. We therefore agree with the Court below that the appellant has no right to interdict the ordinary process of law and the trial of the
suit instituted by the respondent in the lower Court. His application u/s 34 of the Arbitration Act has therefore been rightly dismissed.
In the above circumstances, the appeal fails and is dismissed with costs. Counsel''s fee, Rs. 500.
The appellant-defendant is granted ten weeks'' time for filing written statement.