Pares Stores vs Kanti Kumar Bimal Prasad

Ghose, J.—This is an application for, inter alia, the determination of the validity, existence and effect of the arbitration agreement, if any, between the parties and for declaring the award or judgment dated August 20, 1968, in case No. 68 of 1968 (sic) made by the Textile Merchants Association null and-void and for setting aside the said award or decision.

The Petitioner agreed to purchase from the Respondent and the Respondent agreed to sell to the Petitioner various textile goods mentioned in a document dated October 20, 1967, on the terms and conditions amongst others contained in the said document. Disputes and difference arose between the parties with regard to the said contract whereupon on or about January 29, 1968, the Respondent referred the disputes between the parties to Textile Merchants Association in accordance with the provisions of the rules of the said Association although in the document dated October 20, 1967, there is no arbitration clause. The Respondents alleged that the parties agreed orally to refer the disputes arising out of the contract to the arbitration of the Textile Merchants Association in accordance with the arbitration clause contained in the rules of the said Association. The said Association registered the said complaint as a case, being Case No. 68/129 ''(Kanti Kumar Bimal Prasad v. Paras Stores). The Association forwarded a copy of the aforesaid complaint of the Respondent together with a copy of the statement of claim of the Respondent to the Petitioner. The Secretary of the Association informed the Petitioner by the said letter that unless the matter was mutually settled the same would be forwarded to the Arbitration Committee for decision in accordance with the provisions of the rules of the said Association.

On February 5, 1968, the Petitioner replied to the complaint and the statement of claim of the Respondent filed before the Association. On February 15, 1968, the Respondent filed its rejoinder to the reply of the Petitioner before the Association. On February 26, 1968, an award was made by the Arbitrators of the Arbitration Committee directing the Petitioner to take delivery of the goods mentioned in the said document dated October 21, 1967, from the Respondent within seven days, and in default thereof the Respondent was directed to sell the goods at the market rate and claim the difference. On or about March 5, 1968, the Petitioner preferred an appeal from the judgment of the said Arbitration Committee to the Appellate Board of the said Association in accordance with the provisions of the rules of the said Association governing such arbitrations.

On April 9, 1968, the Appellate Board confirmed the award of the Arbitration Committee but extended the time under the said award for taking delivery by the Petitioner until April 24, 1968.

On May 5, 1968, the Respondent wrote to the Petitioner notifying that as no delivery was taken by the Petitioner, the Respondent would sell the said goods at the market rate and claim the difference. Thereafter the Respondent sold the goods in the market and claimed difference of Rs. 15,637 and interest. As the said sum was not paid by the Petitioner the Respondent filed another complaint before the Respondent and referred the said disputes to the arbitration of the said Association.

The said claim was registered as a case, being case No. 68/68 by the said Association. The said Association, on or about July 23, 1968, gave notice to the parties including the Petitioner that a meeting of the Arbitrators would be held on July 25 at 3 p.m. On July 25, 1968, another notice was issued by the Association to the Petitioner that the meeting would be held on August 1, 1968, at 3 p.m. On August 3, 1968, a peremptory notice was given by the Association to the Petitioner to the effect that a meeting of the Arbitrators would be held on August 8, 1968, and further notified that in default of the Petitioner appearing, the Arbitrators would proceed ex parte. The Petitioner did not attend any of the aforesaid meetings and on August 8, 1968, the Arbitrators did not hold any meeting but on August 19, 1968, gave a further notice to the Petitioner that a meeting would be held on August 20, 1968, at 3 p.m. On August 20, 1968, the Petitioner as usual did not appear. The Arbitrators proceeded ex parte and made and published their ''judgment'' or the award, directing the Petitioner to pay to the Respondent a sum of Rs. 10,787-32 as compensation for non-acceptance of goods under the contract dated August 20, 1968. This application is for the declaration of the said award as null and void and for setting aside thereof as mentioned earlier.

Mr. Bachawat appearing on behalf of the Petitioner has submitted:

(i) In the instant case alleged arbitration agreement was not reduced to writing as is required under the Indian Arbitration Act, 1940, and as such is void and of no effect. Therefore, there was or is no arbitration agreement between the parties. The Arbitrators had no jurisdiction to go into the reference as they had done and the award dated August 20, 1968, is null and void.

(ii) The Arbitrators proceeded with the reference ex parte on August 20, 1968, without serving a peremptory notice upon the Petitioner and, therefore, are guilty of having misconducted the proceedings and on the same ground the award should be set aside.

In support of his contention Mr. Bachawat relied on the case of Juggilal Kamlapat Vs. N.V. Internationale Crediet-En-Handels Vereeninging ''Rotterdam'', .

In support of his first contention Mr. Bachawat relied on the case of Firm Narain Das Balak Ram Vs. Bhagwan Das Kedar Nath and Others, and a judgment of Panckridge J. of this Court in the case of Keshoram Cotton Mills v. Kanhyalal Bagwan 44 C.W.N. 607. Thirdly, Mr. Bachawat contended that the story of oral agreement as pleaded in the affidavit in para. 3(c) & (d) of the affidavit of Kanti Kumar Nevatia affirmed on September 25, 1969, cannot be accepted being devoid of all particulars and should be negatived.

Mr. Jain appearing on behalf of the Respondent contended that (1) an arbitration agreement need not be a formal document in writing .nor need it be executed nor signed by the parties. All that is necessary to bring an arbitration agreement within the definition of the same as laid down in the Arbitration Act is that there should be a document containing an arbitration clause and the parties must accept or adopt the said document to be the bargain or part of the bargain between them. In the instant case, according to Mr. Jain, the rules of the said Association contained an arbitration agreement and the parties having accepted the same orally or in the alternative by conduct the requirements of the statute have been complied with and an arbitration agreement had come into existence. Mr. Jain relied on the cases of Seth Banarsi Das Vs. The Cane Commissioner and Another, , Jugal Kishore Rameshwardas Vs. Mrs. Goolbai Hormusji, , Union of India (UOI) Vs. A.L. Rallia Ram, , a Division Bench decision of this Court in the case of Bijoy Ballav Kundu and Another Vs. Tapeti Ranjan Kundu, , Ram Chandra Ram Nag Ram Rice and Oil Mills Ltd. Vs. Howrah Oil Mills Ltd. and Another, , Radha Kanta Dass Vs. Baerlein Bros. Ltd., , Varadam Shetty Jambulanna and Another Vs. Narshi Mulji and Co., ,Firm Chimanram Matilal v. Firm Vandravandas Gordhandas AIR 1948 Bom. 55, Prataprai Manmohandas Vs. Sheo Narayan Balal and Co., and Mohanlal Chhaganlal Shah Vs. Bissesarlal Chirawalla and Others, .

(2) Mr. Jain further contended that it is apparent from the conduct of the parties including the Petitioner in the instant cases evidenced by non-denial of the Petitioner of the allegation of the applicability of the rules and the arbitration clause contained therein of the said Association to the contract between the parties as alleged in the statement of claim before the said Association dated January 29, 1968, as well as participation of the Petitioner in the Reference and appeal from the award directing acceptance of the delivery go to show irresistibly that there was such an agreement arrived at by and between the parties orally to the effect that the arbitration clause Contained in the rules of the said Association should be applicable and form part of the bargain between the parties.

(3) The non-service of a peremptory notice on August 19, 1968, did not vitiate the proceedings or the award inasmuch as the Petitioners never intended to participate in the arbitration proceedings and had notwithstanding service of several previous notices including peremptory notice dated August 3, 1968. Thus, the Petitioner made it abundantly clear to the Arbitrators that they would never attend the arbitration proceedings. Thus, the Arbitrators did not commit any default or misconduct in not serving peremptory notice on August 19, 1968.

(4) Further, Mr. Jain submits that the aforesaid conduct of the Petitioners in not denying arbitration agreement between the parties as contained in the rules of the said Association, participation in the arbitration proceedings in the first Reference and appealing from the award in the first Reference go to show that the Petitioners were representing that there was an arbitration agreement between the parties as alleged by the Respondents. The Respondents acted upon the said representation and proceeded with the Reference. As a matter of fact, never before the filing of the petition in the instant proceeding did the Petitioner allege that there was no arbitration agreement between the parties. Now, if it be held that there was no arbitration agreement between the parties, the Respondent would not be entitled to institute a suit because of the Laws of Limitation to enforce their claim under the contract between the parties. Therefore, it must be held that because of the representation made by the Petitioner as mentioned above, the Respondents have suffered detriment by acting thereupon and the Petitioners should be estopped from denying that there is a valid and subsisting arbitration agreement between the parties.

The oral part of the agreement as pleaded by the Respondent is contained in the sub-paragraphs under para. 3 of the affidavit-in-Opposition affirmed by Kanti Kumar Nevatia on September 22, 1969. Curiously enough it is alleged in the said affidavit that even prior to entering into any agreement for sale or purchase of textile goods by and between the parties

it was agreed and/or understood that the transaction between the parties if entered into would be subject to the terms and conditions applicable to such contracts as prescribed by the Textile Merchants Association.

It is stated that the document dated October 20, 1967, did not record all the terms and conditions relating to the transaction and merely recorded some of the terms and conditions between the parties. It is stated that the terms and conditions of the said Association applicable to such contract includes an arbitration agreement and rules for carrying into effect the said arbitration agreement by the Tribunal of Arbitration of the said Association.

In the letter of complaint filed before the Tribunal of Arbitration which is dated January 29, 1969, it is alleged that the transaction dated October 20, 1967, was settled with Shew Bharudin through broker Jugraj. In the statement of claim it is alleged that the contract incorporated and included as a part of the bargain between the parties the terms and conditions applicable to such contract as prescribed by the said Association and rules and regulations governing such contracts of the said Association.

It is true that in their reply dated February 5, 1968, to the said statement the terms and conditions relating to the arbitration clause are not denied: But, it is also admitted by the Respondent in the said letter that the transaction was negotiated and arrived at through the broker Jugraj. Whether the parties had entered into oral agreement whereby the terms and conditions of the said Association applicable to such contracts were attracted and incorporated and made part of the bargain between the parties; it is only the broker who can adduce primary evidence with regard to that. In the absence of an affidavit from the broker, I am unable to accept the statement of Kanti Kumar Nevatia with regard to the same.

Thus in my opinion, the Respondent has failed to prove that there was any oral agreement between the parties. True it is, as noted earlier, the said allegation as to terms and conditions applicable to the contract between the parties as alleged in the letter dated January 29, 1969, of the Respondent was not denied by the Petitioner in their letter dated February 5, 1968. But that by itself in the facts and circumstance of this case cannot clinch the issue in my view. The Respondent in their said application also did not mention anything with regard to the oral agreement that was arrived at by and between the parties as is being alleged now in the instant application.

The arbitration agreement has been defined as

a written agreement to submit present or future differences to arbitration whether the Arbitrator is named therein or not.

Under the present Act there is no scope for an oral agreement to refer the disputes to arbitration although no particular form of such agreement is necessary. An arbitration agreement need not be signed by the parties: See Umed Singh v. Seth Sohagmal ILR 43 Cal. 290 P.C. The said decision was given by the Judicial Committee on the relevant provisions contained in Sub-rule (2) of para. 1 of 2nd Schedule contained in the CPC which required the submission of arbitration to be in writing. The signature of parties is not a necessary ingredient to validate an arbitration- agreement. It is only essential that both the parties must accept a written document or documents containing an arbitration agreement. It may be signed by both the parties or only one of them and accepted orally or by conduct by the other; it is stated in the instant case that the terms and conditions applicable to such contract as contained in the rules of the said Association contained, inter alia, an arbitration clause to the following effect:

(i) All disputes with regard to this transaction shall compulsorily be referred to the arbitration in accordance with the rules and regulations of the Textile Merchants Association in force for the time being and the decision of the Arbitrators shall be final and binding on both the parties.

(ii) Unless there is a contract to the contrary, these rules shall apply to all disputes and differences arising out of or in relation to a commercial transaction between members subject to the rules and regulations and/or by-laws and/or conduct of the business from time to time framed by the Association. The award of the Arbitration Committee shall be final and binding on the parties and person or persons claiming under them.

But, the incorporation of a document containing an arbitration clause to refer disputes to arbitration between the parties in a contract must be in writing in order to validate the arbitration agreement and bring it within the four corners of the definition as laid down in the Act. In order to be an agreement in writing parties must refer to the terms and conditions containing an arbitration clause of any Association as governing the contract between them or as part of the terms and conditions of the contract between them in my view in writing as contemplated by Section 2(a) of the said Act. This writing must incorporate the said terms and conditions or make them part of the contract or bargain between the parties although need not be signed by the parties or form part of a formal document executed by the parties.

In the instant case, the said term making the rules and conditions of the Association including the arbitration clause contained therein a part of the contract between the parties is stated to be oral. The oral agreement which is alleged to -attract or incorporate the arbitration clause contained in the rules of the said Association in the contract between the parties cannot have the effect of a valid arbitration agreement within the meaning of ''the Act. It is stated that the arbitration agreement contained in the rules of the said Association is in writing. Therefore, the said arbitration agreement may be accepted by both the parties orally or by conduct in order to make the same a part of the contract between the parties and that satisfies the definition of the arbitration agreement as laid down in Section 2(a) of the said Act. But it seems to me that that is not so. In that event the arbitration agreement would be attracted by the oral agreement and must be held to be oral agreement. Therefore, in my opinion, the term attracting or incorporating the arbitration clause contained in a document must be in writing.

Mr. Jain relied on the case of Banarasi Das v. Cane Commissioner, Uttar Pradesh ( Supra). In the said case it was observed by the Supreme Court that an arbitration clause contained in an agreement would be valid and binding if agreed to even in the absence of the signature of the parties or any party thereto. It was observed further,

it is sufficient if the terms are reduced to writing and the agreement of the parties thereto is established.

The next case relied on by Mr. Jain is the case of Jugal Kishore v. Gool Bai (Supra (815)). The aforesaid observation made by the Supreme Court in Banarasi Das''s case was noted'' in para. 7.

In the case of Union of India v. A.L. Rallia Ram (Supra (1689)), it was also held that a formal document signed by parties is not necessary. All that Section 2(a) of the Indian Arbitration Act requires is that an agreement to submit present or future disputes to arbitration must be in writing and must be accepted by the parties. The aforesaid observations appear in para. 10. The said observations are as follows:

By Section 2(a) of the Arbitration Act, 1940, ''arbitration agreement'' means ''a written agreement to submit present or future differences to arbitration, whether an Arbitrator is named therein or not''. A writing incorporating a valid agreement to submit differences to arbitration is therefore requisite; it is however not'' a condition of an effective arbitration agreement that it must be incorporated in a formal agreement executed by both the parties thereto, nor is it required to be signed by the parties. There must be an agreement to submit present or future differences to arbitration, this agreement must be in writing and must be accepted by the parties.

In the case of Bijoy Ballav Kundu v. Tapati Ranjan Kundu ( Supra) a Division Bench of this Court consisting of Sinha J., as his Lordship then was, and R.N. Dutt J. it was held that an arbitration agreement should be signed by the parties or any of them. All that was required u/s 2(a) of the Arbitration Act that there should be an agreement to refer present or future disputes to arbitration in writing and the parties to the said agreement must accept the same. In the said case, the arbitration agreement was contained in the deed of settlement and the disputes arose between the trustees under the said deed of settlement. The trustees having agreed or accepted to act under and in terms of the said deed of settlement, it was contended that the arbitration agreement was in writing as it was contained in and formed a part of the deed of settlement which was accepted by the trustees and thus there was a valid and binding arbitration agreement to which all the trustees were parties. But, the said contention was overruled and repelled by the Court. It was held that the trustees who agreed to act as trustees merely agreed to carry out the objects and purposes of the trust. That by itself did not show any agreement on the part of the trustees to be the parties to the arbitration agreement contained in the said deed. It was observed by the Division Bench in the said case as follows, to wit:

In order that there may be a reference to arbitration which ousts the jurisdiction of the Courts, the parties must enter into an arbitration agreement, that is a matter that must be governed by law and in a given case it must be shown that the parties have lawfully entered into such an agreement and there is in existence a lawful agreement.

In the case of Ram Chandra Nag Ram Rice & Oil Mills Ltd. v. Howrah Oil Mills ( Supra) it was observed that in order to constitute an agreement

in writing within the meaning of Section 2(a) it is not necessary that the agreement should, be signed by both the parties.

All that is necessary is that the parties should accept the terms of the agreement. The acceptance may be in writing or by conduct or by Oral agreement. The .said decision followed the aforesaid case of Jugal kishore v. Gool Bai (Supra). Mr. Jain strongly relied on this case and contended that the facts of this case are similar to that of the present case before me. Therefore, it is necessary for me that I should consider the facts of the said case in some detail.

In the aforesaid case an arbitration clause was contained in the sold note signed by the broker and exchanged and delivered to the purchaser. The broker signed the sold note and was an agent of the seller. The sold note was not signed by the other party who delivered goods to the Defendant upon the terms and conditions contained in the said sold note. It was held that the same amounted to an acceptance of all the terms including the arbitration clause contained in the sold note and constituted an arbitration agreement within the meaning of Section 2(a) of the Act.

It is clear that the contract which was entered into by and between the parties was on the basis of the sold note which governed the transaction in that case. The said sold note itself contained the arbitration clause and was signed by the agent of one of the parties. It was accepted orally or by conduct by the other party and was acted upon by him. In the background of the facts of the said case, the aforesaid ratio decidendi was arrived at by the Court. The cases Mohanlal Chhaganlal Shah v. Bissesarlal Chirawalla and Ors. (Supra), Firm Chimanlal Matilal v. Firm Vandravandas-Gordhandas (Supra) and Manmohandas v. Sheo Narain Balal & Company (Supra) stand on a different footing inasmuch as the parties in all the said cases were members of the Association. It was held that they having agreed to abide by the rules and regulations of the said Association made by them in writing and signed by them were bound also by the arbitration agreement contained in the rules of the Association in the aforesaid cases. It is apparent that by agreeing to abide by the rules and regulations of the said Association in the application to be members, the parties therein writing agreed also to be bound by the arbitration Clauses contained in the said rules and adopted the same as part of the bargain of the contract between them. It is to be noted, however, that in the case of Khusiram v. Hanutmal (1948) 53 C.W.N. 505 S. R. Das J., as his Lordship then was, did not agree with the ratio decidendi in the aforesaid cases. In the case of Firm Narain Das Balak Ram v. Bhagwan Das Kedar Nath and Ors. (Supra) the facts were identical with those of the present case. In the said case also, under an oral agreement, a member of an association and a stranger agreed to abide by the rules and bye-laws of the Association, One of the said rules contained an arbitration clause providing for submission of disputes to arbitration. It was held by the Division Bench of the Allahabad High Court in the said case that the said agreement did not comply with the requirements of Section 2(a) of the Indian Arbitration Act. It was held in the aforesaid case by the Division Bench that

but in the case before us there are only the rules and bye-laws of the chamber-and the oral agreement to abide by the rules. These taken together do not amount to any written agreement to refer the dispute to arbitration.

Mr. Jain contended that all that the Arbitration Act required was an arbitration agreement in writing, that agreement may be accepted either orally or by signing by both the parties or by signature by one and orally by the other or by conduct, that is the course of dealing by both the parties, that has been the case in the present case. I am unable to accept the aforesaid contention of Mr. Jain. In the instant case, as pleaded by the Respondent, there was no arbitration agreement in writing. The agreement to attract or make applicable the arbitration clause contained in the rules is the agreement to refer disputes to arbitration; that agreement attracting and making applicable the arbitration clause contained in the rules must be in writing either signed or accepted even orally- by the parties to the said agreement. In the absence of a Written term in the instant case attracting the arbitration clause contained in the rules and bye-laws of the said Textile Merchants Association by the contract or bargain between the parties and making the same part of the bargain between the parties there, is no valid arbitration agreement within the meaning of the Arbitration Act, 1940. In the absence of an arbitration agreement the Arbitrators had no jurisdiction to enter into the Reference and make the award as they have done. For the reasons aforesaid, all the proceedings before the Arbitrators were and are null and void, the award published by the Arbitrators are consequently null and void.

In the instant case, I do not think that the Respondent can avail of the plea of estoppel; in order to avail of the plea of estoppel there must be representation by one party and the acting upon the same by the other party to its detriment. The party who acts upon such representation must not be aware of the real state of affairs in order to be entitled to take the plea of estoppel. But, in the instant case, whether there was an oral agreement or not and whether such an agreement amounted to a valid arbitration agreement between the parties were also within the knowledge and comprehension of the Respondent. Of the factual existence or otherwise of such an agreement the Respondent must have been aware because he was alleged to be a party to such an agreement. On the legal effect of such an agreement the Respondent cannot rely upon inasmuch as ignorance of law cannot be an excuse. For all the reasons aforesaid, the participation of the Petitioner in the proceedings before the Arbitrators cannot have any effect in the instant case because here the proceedings were not merely irregular but were null and void in view of the inherent lack of jurisdiction of the Arbitrators.

For all the reasons mentioned above, this application must succeed. It is declared that the said award is null and void and is set aside. In the facts and circumstances of this case, each party shall pay and bear his cost of and incidental to this application.