Sree Durga Mining Co. vs Jyoti Brothers

Chakravartti, C.J.—The only question involved in this appeal is whether an arbitration agreement on which the Appellant was relying in support of an application u/s 34 of the Arbitration Act, is a valid agreement. The Respondent contends that it is not valid and it urged two grounds of objection before Mukharji, J. The learned Judge did not pronounce on one of the objections, but he upheld the other.

The controversy has arisen in the following way. By two several contracts entered into on May 22, 1955, the Respondent firm agreed to buy from the Appellant and the Appellant agreed to sell to the Respondent certain quantities of iron ore of a certain, specification. The Respondent''s case is that no ore was delivered and it brought a suit on the Original Side of this Court for the recovery of a lakh of rupees as damages or, in the alternative, for an enquiry as to what damages it had suffered on account of the non-delivery of the goods. The Appellant did not file its written statement in the suit, but intervened with an application u/s 34 of the Arbitration Act. Its contention was that the contracts concerned contained an agreement for arbitration and, therefore, the suit ought not to be allowed to proceed.

The arbitration agreement relied upon by the Appellant is expressed in the following terms:

In the event of any dispute arising out of this contract the same can be settled by arbitration held by a Chamber of Commerce at Madras. Their decision shall fee binding to the buyers and the sellers.

The Respondent''s contention was that this so-called agreement was twice bad. It was bad, because by its language no concluded contract had been arrived at. It was also bad, because as regards the arbitrator, to whom the disputes contemplated were to be referred, there was such vagueness that the term could not possibly be worked. Mukharji, J. before whom these contentions were urged took notice of both of them, but as he thought that the Respondent was entitled to succeed on the first of them, he did not express any opinion on the second, besides recording the contentions of the parties.

Before us Mr. Deb has contended that although the language of the arbitration clause might have been more precise, what the parties intended to agree about was reasonably clear. He invoked the principle that in construing arbitration agreements, the Courts ought to try to adopt a construction which would give effect to them rather than one which would frustrate them altogether, unless the language used made it wholly impossible to do so. According to Mr. Deb, it was not impossible in the present case to adopt a construction which would make the arbitration agreement a valid and concluded contract. He said that the language used by the parties should be construed as meaning that they were agreeing that in case any dispute arose out of the contract, the same shall be referred to arbitration. We were also asked to bear in mind the fact that the contract was between two Indian parties who were trying to express themselves in the English language and it was submitted that we ought not scrutinise the words used too strictly.

With regard to the second objection of the Respondent, Mr. Deb contended that the arbitration agreement did not suffer'' from vagueness. What it said was that in the event of any dispute arising between the parties out of the contract, such dispute would be referred to the arbitration of "a Chamber of Commerce at Madras". According to Mr. Deb that language only gave the qualifications of the arbitrator contemplated and did not amount to naming an arbitrator. No question of vagueness could, therefore, arise. It had been proved by affidavits that there were five Chambers of Commerce at Madras. Mr. Deb''s contention was that all that the arbitration agreement expressly said was that disputes arising out of the contract would have to be referred to arbitration, that the arbitrator would have to be a Chamber of Commerce and that it would have to be one of the Chambers of Commerce at Madras. As to which of the Chambers of Commerce it would be, Mr. Deb contended that the appointment would be made in accordance with the mode prescribed in Section 8 of the Arbitration Act.

I do not consider it necessary to deal with the second contention of Mr. Deb, as the learned trial Judge did not, because, like him, I think that Mr. Deb''s client must fail on the first of the grounds. Although Mr. Deb tried to invoke Section 8 of the Act in support of his second contention and called in aid a decision of myself which was, by the way, regarding an arbitration agreement of quite a different kind, I see certain difficulties in Mr. Deb''s way, attractive and plausible though his argument might be. I need not, however, say more on that question, because the first objection of the Respondent, in my view, is decisive and, therefore, I shall proceed to deal with it at once.

I may dispose first of the appeal made by Mr. Deb for an indulgent construction of the language used by the parties. I can find no reason for such indulgence. It would appear from the preceding clauses of the contract that the parties were perfectly capable of expressing themselves in correct and precise English. The language used by them in the clauses dealing with the substantive terms of the contract is good and firm language by any standard and, therefore, I can see no reason why, in construing the arbitration clause, we should give them the benefit of any special allowance. Leaving the question of a benevolent or indulgent construction aside, Mr. Deb contended that what the first part of the arbitration agreement meant was that the disputes arising out of the contract would be capable of being settled by arbitration. To say that was not to say that the disputes shall be referred to arbitration, as Mr. Deb conceded, but his contention was that in using the language which they had done, the parties were merely trying to express what the legal effect of a binding arbitration agreement would be. I do not think I can see very clearly what Mr. Deb really intended to contend, because before you get to the stage of the effect of an arbitration agreement, an agreement has to come into existence and the whole controversy here was as to whether the parties had brought into existence any valid and binding agreement at all. The learned trial Judge was unable to read in the words used by the parties any present agreement to refer their future disputes to arbitration. According to him, what the language, used by, the parties meant was that they were merely recognising a possibility and merely saying that in the event of any dispute arising, there might be a reference to arbitration in future. If in consequence of that language, an arbitration was to eventuate at some future date, it could do so only if the parties entered into a further agreement for a reference in future, but there could be no reference to arbitration straightaway, if and when a dispute arose, merely on the basis of el. 11 of the contracts.

Having heard Mr. Deb at some length and having given the matter our best consideration, I find it impossible to dissent from the view taken by the learned Judge. To adopt Mr. Deb''s own annotation of the so-called arbitration agreement, all that it says is: that disputes arising between the parties would be capable of being referred to arbitration. If the agreement means nothing more than that, it merely means that if in the future disputes arise between the parties, their settlement by reference to arbitration will not be excluded. I cannot read anything more stringent into the words ''can be settled by arbitration'' as used by the parties.

Mr. Deb was unable to say that effect had ever been given by any Court to an arbitration agreement expressed in such language or that there was any known instance where the parties had so expressed themselves. Mr. Kar referred us to two decisions in aid of his contention that the word ''can'' or the words ''can be'' cannot possibly operate to bring into existence a concluded contract. The cases were G. Scammell and Nephew, Limited v. H.C. and J.G. Ouston [1941] A.C. 251 and Jex v. McKinnery (1889) 14 App. Cas. 77. I do not think that either of those decisions is relevant, because in the first of them the Word "can" although it occurred in the contract, did not fall to be construed at all and in the second, the word was used in a statute in an altogether different context. A third case referred to by Mr. Kar was the case of Luxmi Chand Baijnath v. Kishanlal Sohanlal (1954) 59 C.W.N. 623, but that decision also does not appear to me to be relevant. In fact the learned Judge who decided that case did not give any decision on the validity of the arbitration clause and besides that, the clause provided for alternative arbitrators. These cases, therefore, are of no assistance to Mr. Kar.

But it seems to me that no decisions are required for supporting the view taken by the learned Judge of the first part of- the agreement in question. If two contracting parties merely say that something can be done, they merely enable themselves to do that in future, but till they agree to do it by further agreement, no binding obligation to do it arises. That being so, it must be held that there was no valid or concluded agreement in the present case for a reference to arbitration and the Appellant''s case must fail for that reason alone.

For the foregoing reasons, the appeal is dismissed with costs.

On behalf of the Appellant, Mr, Sen asks for an extension of time to file its written statement. He prays that the time may be extended till Jan. 7, 1958, to which Mr. Roy Chaudhuri does not object. The time for filing the written statement is accordingly extended up to and including Jan. 7, 1958.

Lahiri, J.

I agree.