Judgment:
Leila Seth, J.
(1) This appeal arises out of a judgment and order passed by Mr. Justice S.N. Kumar on 11/04/1980.
(2) Suit No. 714 of 1979 was filed on 23/06/1979 by the plaintiffs-appellants. The prayers mentioned in the said suit are as follows :
'(I)A decree of declaration be passed to the effect that there exists between the parties No Agreement to refer the disputes to the Arbitration of anyone, i.e. there is no Arbitration agreement between the parties.
(II)And that the appointment of the Arbitrators by the Defendants as well as the Grain and Feed Trade Association,London, is illegal, void and without any jurisdiction.
(III)And that the agreement contained in the Plaintiffs letter of 25/01/1979 stands cancelled by the plaintiff's letter dated 3/02/1979 and 12/02/1979 on account of defaults on the part of the defendants.
(IV)That the defendants and each of them be restrained by way of Permanent Injunction from proceeding with the Arbitration Proceedings in London.
(V)Any other relief which this Hon'ble Court deems fit in the circumstances of the case, may also please be awarded.'
(3) Along with the said suit an application under Order 39 Rules 1and 2, Civil Procedure Code, being I.A. 1962 of 1979 was also filed. The prayer in the said application was to restrain the defendants 'from proceeding further with the arbitration'.
(4) On 25/06/1979 summons were issued in the suit and notice inI.A. 1962 of 1979 was also issued for 14/09/1979.
(5) On 20/08/1979 another application, under Orders Xxxix, Rules 1 and 2, Civil Procedure Code, being 1.A. 2474 of 1979 was filed praying for 'an ad interim ex-parte injunction order' to restrain the respondents 'from proceeding further with the arbitration.
(6) On 22/08/1979 an ex parte order, staying the pronouncement of the award, was made, leaving the arbitrators free to continue with theproceedings. This I.A. was also directed to be listed on 14/09/1979, the date already fixed.
(7) On 13/09/1979, respondent No. 1 M/s. Ludwig Wunscheand Company filed an application under section 34 of the Arbitration Act,1940 and section 3 of the Arbitration (Protocol and Convention) Act, Act VI of 1947 for stay of proceedings in suit No. 714/79. The said application being I.A. 2791/79 was also listed before the court on 14/09/1979. Notice of the said application was accepted by counsel for the Plaintiffs-appellants and time was granted for filing a reply and rejoinder. The matter was directed to be listed on 7/11/1979. However, further time was sought and the matter was adjourned from time to time till I A. 2791/79 was finally listed for arguments and disposal on 12/02/1980.
(8) On that date, after hearing the arguments, the learned Judge reservedorders. On 11/04/1980 he delivered his judgment and dismissed suitNo. 714/79.
(9) The main contention of learned counsel for the appellants is, that the learned Judge acted without jurisdiction in dismissing the suit while disposing of an application under section 34 of the Arbitration Act, 1940and section 3 of the Arbitration (Protocol and Convention) Act, Act Vi of1937.
(10) The other contention of learned counsel is that there is a specific prayer in the suit for a declaration to the effect, that there was no agreement to refer the disputes to arbitration. This indicates that the plaintiffs-appellants are challenging the existence of the arbitration agreement and the learned Judge, erred in recording a finding that there was an arbitration agreement between the parties which was binding, without framing an issue and allowing the parties to lead evidence in support of their case regarding the question of validity and existence of a contract in terms of Gafta FormsNos. 119 and 125.
(11) It was also urged, that the learned Judge, while deciding an application under section 34 of the Arbitration Act, 1940, has a limited jurisdiction and the maximum he could do was to stay the suit, in case he came to the conclusion that there was an arbitration agreement.
(12) Mr. D.K. Syal, learned counsel appearing for the respondents,took a preliminary objection that the appeal was not maintainable, as the suit itself was not maintainable, in view of Order Vii rule 11(d). Civil Procedure Code. According to him, the plaint had to be rejected, as it was apparent from the statement in the plaint, that it was barred by law. This, according to him, was because, only an application under section 33 of the Arbitration Act, 1940 is maintainable, to challenge the existence or validity arbitration an of agreement, and a suit is not maintainable, in view of section 32 of the said Act.
(13) Mr. D.K. Syal referred to sections 46 and 47 of the said Act toestablish, that the provisions of the Act, except those expressly excluded,applied to all arbitrations and proceedings there under and to 'every arbitration under any other enactment for the time being in force, as if the arbitration were pursuant to an arbitration agreement and if that other enactment were an arbitration agreement' in so far as the Act is not inconsistent with the other enactment and rules.
(14) Mr. Ishwar Sahai, learned counsel appearing for the appellants joined issue with this proposition and referred to a decision of the Supreme Court in Ranusagar Power Co. Ltd. v. General Electric Company and another, : [1985]1SCR432 . In the said case, it was held that a suit to challenge the existence and validity of an arbitration agreement was maintainable, incases of foreign arbitrations as there is no provision equivalent to section 32 of the Arbitration Act, in the Foreign Awards (Regulation and Enforcement) Act, 1961.
(15) Mr. Ishwar Sahai further urged, that even if a suit was notmaintainable, then the plaint could have been converted into an application under section 33 of the Arbitration Act, if the objection had been taken atthe earliest. But, now in any case, in view of the judgment of the Supreme Court in Ranusagar Power Company's case above mentioned, the suit wasmaintainable.
(16) The contention of learned counsel for the appellants appears to be correct on this point.
(17) In paragraph 52 of the said judgment Mr. Justice Tulzapurkar,speaking for court has observed :
'AN examination of Sections 3, 5 and 7 of the Foreign Awards Act in juxtaposition with Sections 32, 33 and 34 of the Arbitration Act brings out these differences. Under Section 32 of the Arbitration Act Suits to challenge the existence or validity of an arbitration agreement or award as also suits to have the effect (scope) of an arbitration agreement determined are barred and such questions can be raised only by an application under section 33 of the Act whereas under the Foreign Awards Act there is no provision similar or akin to Sections 32 and 33 (and that is why a suit of the nature filed by Renusagar qua the arbitration agreement covered by the Convention is maintainable) but by virtue of sections 3 and 7 the same purpose is served though by different procedure. Sections3 and 7 read together disclose a scheme that so far as questions ofexistence, validity and effect (scope) of the arbitration agreement are concerned, the determination thereof by the arbitrators is also subject to the decision of the Court and this decision of the Court can be had either before the arbitration proceedings commence ordering their pendency, if the matter is decided by the Court in a Section 3 petition, as in the present case. or can be had under section 7 after the award is filed in the Court and is sought to been forced under Section 6.'
'INeffect. Section 3 of the Foreign Awards Act so to say combines in its own arm bit both Sections 33 and 34 of the Arbitration Act ; in other words, questions regarding the existence, validity or effect (scope) of the Arbitration Act are required to be decided under Section 3 of the Foreign Awards Act before a stay of legal proceedings contemplated therein could be granted and the right to have legal proceedings stayed contained in Section 34 of the Arbitration Act is also to be found in the some Section 3.'
(18) It is thereforee, apparent that the preliminary objection raised by Mr. D.K. Syal for the respondents cannot be sustained.
(19) We feel that there is merit in the main contention of learned counsel for the appellants, that, while deciding an application under section 34 of the Arbitration Act or 3 of the Arbitration (Protocol and Convention) Act, Act Vi of 1937, the court should not have dismissed the suit but should have stayed it, if it was satisfied that an arbitration agreement existed.
(20) In this view of the matter, we were inclined to allow the appeal and remit the case to the single judge. But in order to ascertain whether any useful purpose would be achieved in following this course, we enquired fromMr. Sahai the real nature of his grievance. He submitted that the appellants were prejudiced by the dismissal of the suit by the trial court, as they were denied an opportunity of proving their allegations. According to counsel,the appellants were entitled to lead evidence to establish that there was no Arbitration agreement.
(21) Counsel relied on the observation in Mithailal Gupta v. Inland Auto Finance, : AIR1968MP33 , wherein that court had observed that 'an affidavit in support of an application is no evidence, it is intended merely to satisfy the court, prima facie that the allegations in the application are true so that the Court may issue notice to the opposite party and the Court may act upon it if the opposite party does not contest the allegations in the application.'
(22) The Madhya Pradesh High Court had gone on to observe that since the plaintiff was denied an opportunity of proving the issue of fact and the matter had been decided merely on submissions made by the parties in the application under section 34 of the Arbitration Act and the reply thereto, the finding could not be sustained.
(23) In the above mentioned case of Renusagar Power Co. Ltd., in paragraph 98, the Supreme Court has opined that a stay of the suit either under Section 3 of the Foreign Awards Act or under Section 34 of the Arbitration Act, 1940 may have the effect of finally disposing of the suit for all practical purposes. But that is no reason why the relief of stay should be refused by the court when section 3 makes it obligatory upon the court to stay the legal proceedings if the conditions of the section are satisfied. The' section itself indicates that the proper stage at which the Court has to be fully satisfied about these conditions is before granting the relief of stay in a Section 3 petition and there is no question of the Court getting satisfied aboutthese conditions on any prima facie view or a pro tanto finding thereon.Parties have to put their entire material before the Court on these issues(whichever may be raised) and the Court has to record its finding thereinafter considering such material.'
(24) A perusal of the impugned judgment, would indicate that when the matter was heard, both counsels agreed to proceed on the basis that the matter 'be decided on the basis of the documents placed on record.'According to the learned Judge, it was also agreed that the 'suit was maintainable because for deciding an application for stay of the suit the main question to be first decided by the Court would be about the existence of the Arbitration agreement and if the finding was that there was an arbitration agreement all the prayers in the suit would automatically fail.'
(25) Without going into the facts, whether the appellants wereprejudiced, because an order for affidavits was not expressly made, we asked learned counsel what evidence he would lead, in case, an order for evidence had been made. He told us that he would like to lead evidence pertaining to the question of the contract never having been concluded and would like to examine Mr. Veena Nayyar on this aspect. In order to cut short the matter of remanding this case, and evidence being recorded by the Single, Judge, we told Mr. Ishwar Sahai, that we are prepared to record evidence in appeal, if he wished to produce any.
(26) The arguments were concluded on 1/08/1985. Counsel prayed for a brief adjournment to obtain instructions, which was granted.On 5/08/1985, counsel informed us, that he had wanted to produceMs. Veena Nayyar, but he was not in a position to do so as she had left the service of the appellants and her whereabouts were not known. He alsostated, that apart from her, he did not wish to produce any other witness.In these circumstances, he said, he did not wish to press the point.
(27) The facts are, that the dealings between the parties commenced with a letter of 17/10/1978 written by the appellants to M/s. WilhelmMeinshusen, respondent No. 2, a broker, introducing themselves as exporters of Tapioca Chips. On 31/10/1978 respondent No. 2 replied to the said letter and indicated that they would be happy to receive Ms. Veena Nayyar in Hamburg to discuss the possibility of mutual business. A 'perform a contract sheet in order to stipulate the contract terms' was enclosed forguidance. Conditions of the said proforma were as follows :
'THIS contract is issued under terms and conditions effective at date of Gafta London Contract No. 119 which are hereby made apart of this contract except as far as modified above. Both Sellers and Buyers declare acknowledgment and familiarity with GAFTA Contract and agree to be bound by its terms and conditions.'
(28) Gafta stands for 'The Grain and Feed Trade Association Ltd.'Contract Form No. 119 provides that any dispute arising out of a contract embodying these rules will be referred to arbitration in accordance with therules.
(29) Ms. Veena Nayyar, an employee of the plaintiffs, who had written the letter dated 17/10/1978 visited Europe and discussed the business prospects with the broker.
(30) On 12/12/1978, Ms. Veena Nayyar wrote to respondent No. 2 in glowing terms thanking him for his hospitality. On the date a telex was sent by respondent No. 2 to the appellants informing it that a firm bid for tapioca chips had been collected. The telex was acknowledged by the appellants an 13/12/1978 and it was confirmed that a quantity of3000 tonnes would be supplied, '(3) shipment feb (4) specifications accept-able......'. Subsequently there were further exchanges of telexes, and the appellants sent a telex giving a firm offer of 2000 tonnes Indian tapioca chipset Us dollars 101, Fob Mangalore shipment and February, validity tillMonday.
(31) On the very same date the broker-respondent No. 2 confirmed having sold '2000 tonnes Indian tapioca chips, Fob Mangalore, buyersM/s. Ludig Wunsche, Hamburg, price U.S. dollars 101 net to you. The period February 12-March 15 was indicated and that the contract was being airmailed.A contract in Form No. 119 dated 15/01/1979 sent by respondent No. 2 was dispatched to the appellants and the number indicated in the said contract was 3044.
(32) thereforee, it is quite clear that on 15/01/1979 the parties were ad idem and the contract was complete.
(33) On 16/01/1979, respondent No. 2, informed the plaintiff that the buyers had agreed to the shipment period being 25th February till 15/03/1979. On the same day, the plaintiffs wrote to respondent No. 2and queried the credentials of the buyers Respondent No. 2 replied staling inter alia, that the appellants were protected as per Gafta No. 119.
(34) The air-mailed contract sent on 15/01/1979 was received by the appellants on 22/01/1979. It was in Gafta Form No. 119and para 27 set out the arbitration clause which is as follows :
'ANY dispute arising out of contract shall be settled by arbitration in London in accordance with the Arbitration Rules of the Grain and Feed Trade Association Limited No. 125 in force at the time and date of the contract, such Rules forming part of the contract and of which both parties shall be deemed to be cognisant.'
(35) On 25/01/1979, the appellants telexed respondent No. 2,referring to the said contract No. 3044 and requesting that a letter of credit be opened immediately. Certain changes were sought to be incorporated by the appellants, but respondent No. 2, informed them, on the same date, that this way not possible.
(36) On 30/01/1979 referring to both the telexes of 25/01/1979, the appellants agreed and requested that 21 days pre-advice be considered.There is no mention in any of these documents of any other letter of 2 5/01/1979.
(37) On facts, the main argument of learned counsel for the appellants, was that the proforma which was alleged to have been enclosed with the letter of 31/10/1978 by respondent No. 2 had never been received by the appellants and as such they were unaware of the conditions in Gafta Form No. 119. Accordingly, the question of a agreeing to arbitration did not arise.
(38) Though there was some dispute as to whether this proforma had been received by the appellants, it was admitted by counsel on 1/08/1985, in court, after examining the record that the said proforma and the letter had been received on 3/11/1978. He submitted that his earlier contention had been based on the affidavit of Ms. Veena Nayyar, dated 18/12/1979 wherein she had stated 'that no proforma on the contract sheet in form No. 119 of Gafta, London, was ever received by the deponent from Mr. Suck full in or about the month of October or November,1978 as alleged.'
(39) Mr. Joachim Suck full, in his affidavit, dated 22/11/1979, asserted that the letter of respondent No. 2 dated 31/10/1978 had been acknowledged by a letter dated 3/11/1978 of appellants confirming therein that the proforma contract terms were by and large acceptable tothem. This assertion has not been denied by Ms. Veena Nayyar, in theaffidavit, nor has she asserted that the said letter dated 3/11/1978was not written by M/s. Raunaq International Emitted to respondent No. 2.
(40) Accordingly, learned counsel conceded that the proforma must have been received by the appellants as it had been acknowledged by the letter of 3/11/1978.
(41) The learned Single Judge after considering all the documents had come to the conclusion that the contract entered into by the parties was subject to the Gafta rules which included an arbitration agreement. He particularly noticed that the telex of 25/01/1979 sent by the appellants referred to (GAFTA) Contract Form No. 3044. which admittedly included the arbitration clause. We entirely agree with his conclusion. Furthermore,he was definitely justified in dismissing the suit, because the primary question to be decided, both in the suit and in the application under section 34 of the Arbitration Act/Section 3 of the Arbitration (Protocol and Convention) Act,was the existence of an arbitration agreement between the parties. In view of his conclusion that there was an arbitration agreement, the order 'not to stay the suit but to dismiss the same' was inevitable.
(42) Accordingly, we find no reason to interfere and thus dismiss the appeal. There will be no order to costs.