Kerala State Coop. Marketing ... vs Union Of India (Uoi)
2004 Latest Caselaw 888 Del

JUDGMENT

R.C. Jain, J.

1. This is defendant's application under Section 34 of the Arbitration Act, 1940 (in short ''The Act'') seeking the stay of the proceedings in the present suit.

2.Plaintiff has filed the suit for declaration seeking a decree of declaration to the effect that no valid and binding contract exist between the plaintiff and the defendant for supply of 5000 MT of gramwhole and for a perpetual injunction for restraining the defendant, its agents and servants from proceeding with the present risk purchase tender enquiry No.J-12015/7/88-PUR-III dated 28.10.1988. In response to the tender enquiry dated 29.1.1988 for supply of gramwhole, the plaintiff submitted its tende on the prescribed form to the defendant. Thereafter, the plaintiff received a letter dated 28.3.1988 from the defendant, purporting to be acceptance of the tender, notifying to the plaintiff that the same was in continuation of the telegram dated 28.3.1988 and that the contract will be governed by the Special Conditions of Contract sent along with the tender. Receipt of the telegram dated 28.3.1988 is denied by the plaintiff. According to the plaintiff, no complete and concluded contract came into exitence either by reason of the letter dated 28.3.1988 or otherwise. It is also alleged that the telegram dated 29.3.1988 did not comply with the mandatory requirements of Article 299 of the Constitution of India. It is the case of the plaintiff that the defendant had altered the conditions of procurement of the gramwhole after acceptance of the tender and the plaintiff was not bound and obliged to the altered terms and conditions.

3. The defendant is contesting the suit and has filed a written statement, without prejudice to its right to file an application under Section 34 of the Act, raising preliminary objections about the maintainability of the suit as also on merits. In the application it is averred by the defendant that a duly concluded and valid contract came into existence between the parties after the acceptance of the offer of the plaintiff. Besides, the plaintiff has effectuated the said contract by making part supply of the contracted quantity. It is averred that the contract contains an arbitration agreement in clause 21 of the General Conditions of Contract and according to the said clause all disputes/differences between the parties arising out of or in connection with the said contract are liable to be settled through an arbitrator to be appointed by the Secretary of the Government. According to the defendant, in terms of clause 21, the suit cannot proceed and is liable to be stayed and the matter need to be referred to the arbitrator.

4. The plaintiff has opposed the application and has filed a detailed reply reiterating most of the averments and allegations made in the plaint. It is denied that the suit is liable to be stayed under the provisions of Section 34 of the Act.

5. I have heard Mr. Pradeep Jain, learned counsel appearing for the plaintiff and Mr.Amit Andley, learned counsel appearing for the defendant and have given my thoughtful consideration to their respective submissions. Mr.Andley, counsel for the defendant in support of the application has submitted that a concluded valid contract between the parties had come into existence after the acceptance of the offer of the plaintiff and the contract was even effectuated as the plaintiff made supplies of certain quantities of the commodity and, therefore, it is not open to the plaintiff to now challenge the existence or validity of the contract on one or the other ground. In support of his contention, he has placed reliance upon a Supreme Court decision in the case of The Printers (Mysore) Private Ltd. Vs. Pothan Joseph, AIR 1960 1156. In that case the Court was considering the question of stay of suit proceedings under Section 34 of the Act and it ruled that where an arbitration clause in a contract provided that if in the interpretation or application of the contract any difference of opinion arose between the parties, the same could be referred to arbitration because any difference of opinion in regard to the application of the contract must in the context man the working out of the contract or giving effect to its terms. The Court further observed that the words ''interpretation or application of the contract'' are frequently used in arbitration agreements and they generally cover disputes between the parties in regard to the construction of the relevant terms of the contract as well as their effect, and unless the context compels a contrary construction, a dispute in regard to the working of the contract would generally fall within the clause in question. The words ''application of the contract'' does not mean only a dispute as to the applicability of the contract.

6. On the other hand, Mr.Pradeep Jain, learned counsel for the plaintiff has submitted that the defendant is not within its right to invoke the provisions of Section 34 of the Act because the very controversy raised by the plaintiff in the suit is in regard to the existence and validity of the contract and, therefore, the arbitration agreement contained in clause 21 cannot be pressed into service. He has sought support from the decision of the Supreme Court in the case of Waverly Jute Mills Co.Ltd. Vs. Raymon and Co., . In that case the Court was dealing with the question about the validity of the arbitration agreement under Section 33 of the Act and laid down that if a contract is illegal and void, the arbitration clause which is one of the terms thereof, must also perish along with it and a dispute relating to the validity of a contract is in such cases for the Court and not for the arbitrators to decide.

7. It is a settled legal position that under the Act of 1940, it was the jurisdiction and competence of the Court to decide on the question relating to the existence and or validity of an arbitration agreement which has now been conferred on the Arbitral Tribunal by virtue of Section 16 of the Arbitration and Conciliation Act, 1996. This case being admittedly under the Old Act, the question need necessarily to be considered and answered by the Court. Once the plaintiff has challenged the aspect of very completion of a concluded contract between the parties, there is no question of application of the arbitration agreement contained in clause 21 of the General Conditions of Contract being invoked. It is pertinent to note that this is not a petition unde Section 33 of the Arbitration Act, 1940 seeking a decision of the court about the existence or validity of an arbitration agreement, but is a civil suit for declaration in respect of the non-existence of the contract itself. The question as to whether validly concluded contract came into existence between the parties or not can only be answered after a full-fledged trial of the suit. Doing so otherwise would be unsuiting the plaintiff without trial.

8. In the opinion of this Court, having regard to the peculiar facts and circumstances of the present case and the nature of the relief claimed in the suit, the application is not maintainable and the proceedings under the present suit are not liable to be stayed. The application is accordingly dismissed as without any merit.

C.S.(OS)No.2873/1988

List before the Joint Registrar for completion of pleadings and admission/denial of documents on 2nd December, 2004