Authored By : Arthur Trevor Harries, B.K. Mukherjea

Arthur Trevor Harries, C.J.

1. This is an appeal from a decision of Clough J. allowingan application for staying a suit.

2. The facts have been stated at great length in thejudgment of the learned Judge and it will only he necessary for me to state thesalient facts. The plaintiffs in the suit who were the respondents in thisapplication, were merchants carrying on business in Darbhanga in Bihar. Thedefendants in the suit, who were applicants before Clough J. were Messrs LouisDreyfus & Co. Ltd., who are well known merchants and buyers carrying onbusiness in Calcutta.

3. It is common ground that Messrs Louis Dreyfus & Co.made a contract with the plaintiffs at Darbhanga for supply by the latter ofone thousand tons of linseed oil at a certain price. The contract was enteredinto in the year 1945 and at that time linseed oil could not be taken out ofthe province of Bihar without a Government permit. It is clear that thedefendants in the suit undertook to obtain such permits. The necessary permitswere obtained but there was great difficulty in obtaining railway wagons forcarrying this linseed oil from Bihar to Calcutta. The time for performance ofthe contract was extended from time to time and eventually wagons sufficient tocarry 330 tons of linseed oil were provided by the railway company and thatquantity of linseed oil was delivered to the buyers Messrs. Louis Dreyfus &Co.

4. The plaintiffs, the sellers, appear to have been verysuspicious of the defendants and eventually they alleged boldly that thedefendants had instigated the railway company not to provide wagons for thecarriage of the remainder of the goods which had been purchased. The upshot ofit all was that the sellers claimed that they were not bound by the contractand made monetary claims against the buyers.

5. In the contract which was entered into between theparties there was an arbitration clause in these terms:

In the event of a dispute arising under this contract, thesame shall be referred for settlement in Calcutta to the Tribunal ofArbitration of the Bengal Chamber of Commerce whose decisions it is expresslyagreed shall be final and binding on both parties to this contract.

6. The buyers Messrs Louis Dreyfus & Co., acting underthis arbitration clause applied for arbitration. The sellers, on the otherhand, contended that the dispute which had arisen between the parties was not adispute under the contract, and that the arbitration clause would have noreference to it. The sellers eventually filed a suit in this Court in whichthey claimed damages. The buyers, Messrs Louis Dreyfus & Co., applied tothis Court to stay the suit as the matter was one that should be decided byarbitration. Clough J. eventually held that the dispute which was made thesubject-matter of the suit was a dispute arising out of the contract;accordingly it was a dispute which could, and had been properly referred toarbitration. In those circumstances he made an order staying the suit.

7. Mr. Banerji, on behalf of the appellants the plaintiffsin the suit had urged that the suit as framed could not possibly be stayed. Hevery rightly conceded that if the suit had been framed as a suit for reliefarising out of the contract then much could have been said for the decision ofthe learned single Judge. His argument, however, was that the suit as pleadedwas a suit entirely independent of the contract. He contended that the plaintshowed that the contract was not relied upon at all as the basis of claims madeagainst the defendants.

8. We have been taken very carefully through the plaint inthis case and it appears to me that this case must be decided upon theallegations actually made in the plaint.

9. The plaintiffs actually pleaded the contract entered intobetween themselves and Messrs Louis Dreyfus & Co. But it was alleged thatthis contract had been wholly rescinded and wiped out for two distinct reasons.In the first place it is alleged in the plaint that the contract was frustratedand therefore it must be regarded as having been completely wiped out. Thatbeing so, no arbitration clause existed under which the matter could bereferred to arbitration. What was pleaded was frustration as understood inHirjee Mulji v. Cheong Yue Steamship Co., (1926) A.C. 497 : (95 L.J.P.C. 121).

10. In the second place, it was alleged that the plaintiffwas induced to enter into this transaction by reason of the fraud of thedefendants and the particulars of fraud are set out. It is alleged that ondiscovery of this fraud the plaintiffs immediately avoided the contract andclaimed for loss on the basis of this fraud.

11. It is clear from the plaint that no damages were claimedfor a breach of contract or for failure to accept or a failure to providewagons or such like. The claim for damages falls under two heads. There is aclaim for damages for fraudulent misrepresentation and a further claim for thevalue of goods which were delivered to the defendants. It is made clear thatthis latter head of claim is not a claim for price of goods sold and deliveredunder the contract, but it is really in the nature of a claim for a reasonableprice for goods delivered to the defendants at the latters request.

12. There can be no doubt that this plaint was verycarefully and, if I may say so, ingeniously framed with a view to avoiding anypossible claim under the contract itself. It is made clear in the plaint thatthe contract which was entered into was completely wiped out and that the claimfor the loss suffered is made on grounds other than breach of contract.

13. The learned single Judge realised that the claim aspleaded was not a claim under the contract, but he asked himself whether thatwas sufficient to enable him to hold that the suit should not be stayed. Thelearned Judge was of the view that he had to ascertain what in substance wasthe claim. His view was that in substance this was a claim for damages underthe contract, though it was a claim very carefully camouflaged as a claim fordamages for fraud and a money claim by way of quantum meruit as it is pleaded.

14. If a Court is entitled to go into the question what wassubstantially the nature of this claim, then Clough Js decision may well beright. But in my view a Court is not entitled at this stage to go into such aquestion. The Court must consider the suit as it is pleaded and framed. If itcomes to a conclusion that such a suit as pleaded is a suit on the contract orarising out of the contract then the suit should be stayed. But on the otherhand if the suit as pleaded is a suit independent of the contract then theCourt has no power to stay the suit though it is satisfied that the frame ofthe suit is merely a means of avoiding the consequences of alleging the truenature of the claim.

15. It appears to me that the present case is completelygoverned by a case decided by two very eminent Lords Justices in the EnglishCourts: Monroe v. Bognor Urban District Council, (1915) 3 K.B. 167. In thatcase the plaintiff, a contractor, entered into a written contract with thedefendants for the construction of certain sewerage works; the contractcontained a clause that if at any time any question, dispute or differenceshall arise between the council or their engineer and the contractor upon or inrelation to or in connection with the contract the matter shall be referred toand determined by the engineer. After the plaintiff had done certain work underthe contract the plaintiff refused to complete the work alleging that he hadbeen induced to enter into the contract by fraudulent misrepresentations madein the specification as to the nature of the subsoil of the ground where thework was to be done, and he brought an action to recover damages for thealleged misrepresentations and to have the contract declared void. Thedefendants having taken out a summons under S. 4, Arbitration Act, 1889 to staythe proceedings and refer the dispute to arbitration under the arbitrationclause in the contract, it was held that the dispute was not a dispute upon orin relation to or in connection with the contract within the meaning of thearbitration clause, and that the defendants were not entitled to have theproceedings stayed.

16. In that case a learned Master had held thatsubstantially the suit was based on the contract although it was pleaded as asuit for damages for fraud. The learned Lords Justices who decided the caseheld that it was immaterial what the suit was in substance. What had to beconsidered was the nature of the suit as pleaded. It seems clear that thelearned Master in Chambers and the learned Judge in Chambers who heard theappeal from the Master were of opinion that these allegations of fraud werewholly without foundation and further the learned Judge in Chamber appears tohave thought that the plaintiff had clearly ratified the contract and could notpossibly claim to avoid it on the ground of fraud. The learned Lords Justiceshowever pointed out that those were matters which could be considered if anapplication was made to have the suit dismissed on the ground that it wasfrivolous or vexatious or disclosed no cause of action. They were not groundsupon which a Court could stay a suit under the provisions of the ArbitrationAct. It seems clear from the judgments of both the Lords Justices that theywere very doubtful as to the merits of the plaintiffs suit in that case, butnevertheless they held that as the suit had been pleaded it was a suitindependent of the contract and that the arbitration clause in the contractcould not possibly apply to it. In the circumstances they declined to stay thesuit.

17. The contentions urged before Clough J. were thecontentions urged in support of the suit in Monroes case, (1915 3 K.B. 167).But the English Courts refused stay on the ground that once the claim waspleaded as something entirely independent of the contract no arbitration clausein the contract could ever apply to such a suit.

18. Before us it has been urged that the allegation thatthis contract was frustrated clearly cannot be substantiated. The learnedsingle Judge held that there was no question of frustration in this case andthat any allegation of frustration was little short of frivolous. That may ormay not be so. But can this Court go into the question in the presentproceedings There is an allegation that the contract was frustrated and thereforewas completely wiped out. If it was, then the arbitration clause was wiped outand the matter could not possibly be referred to arbitration. It is not for usat this stage to consider the merits or demerits of that plea of frustration.It is sufficient to hold that frustration having been pleaded the suit is takenout of the ambit of the contract and must be based on entirely differentgrounds.

19. As I have said, the second allegation is of fraud; thatis fraud inducing the plaintiff to enter into the contract. The damages areclaimed purely as damages for fraud coupled with a further claim for the valueof goods delivered to the defendants at the defendants request and not underthe contract.

20. These pleas may be of very doubtful value, but it is notfor this Court at this stage to adjudicate upon them. The plaintiffs have seenfit to rely on these pleas and the success or failure of this suit must dependupon whether they can establish these pleas or not. In this suit they cannotlater turn round and ask the Court to give them damages or the price of thegoods under the contract, because once the claim is made under the contract itis clearly one for arbitration. The plaintiffs having seen fit to plead theclaim in this manner must stand or fall on the claim as pleaded.

21. Another point was taken that in substance this is a suitfor a declaration that the arbitration clause contained in the contract is nolonger in existence and therefore is wholly ineffective. There can be no doubtthat such a claim is impliedly made in this case, though there is no expressclaim for a declaration to that effect. Mr. Banerji who argued this case veryfully for the appellants conceded that before he could succeed he would have toshow that the contract and the arbitration clause contained in it had beensomehow or other wiped out and were not binding on him. The contract as it wasentered into clearly contained an arbitration clause and Mr. Banerjis presentcase involves a request to this Court to hold that the arbitration clause is nolonger in existence or has any binding effect.

22. It is urged that in substance therefore this is a suitwhich requests the Court to decide upon the existence and effect or validity ofan arbitration agreement or award and therefore is a suit which does not lie byreason of S. 32, Arbitration Act, 1940. Where the existence, validity or effectof an arbitration agreement is sought to be challenged, the proper method is anapplication under S. 33 of the Act. What the argument amounts to is this thatthe present suit as framed does not lie. But is that a ground for asking for astay In Monroes case, (1915 3 K.B. 167) it was also urged that the suit asframed did not lie. But the learned Lords Justices pointed out that if that wasso the proper course was to apply to the Court to have the suit dismissed uponthat ground.

23. I do not think it is open to this Court in the presentproceedings to go into the question whether the suit as framed was maintainableor not. The only question that we have to consider is whether the suit asframed is within the ambit of the arbitration clause.

24. I do not hold that the suit as framed has any substancein it, nor do I hold that it is wholly without substance. That will be a matterfor the Court hearing the suit itself or any application. Further, it is notfor this Court to hold at this stage that the suit is or is not maintainable.That also will be a matter which the Court can decide on an appropriateapplication being made to it.

25. In my view as the suit as framed is one for a moneyclaimed wholly independent of the contract this Court has no power to stay itunder S. 34, Arbitration Act. The claim as framed is a claim not under thecontract containing the arbitration clause, but is really a claim based on tortand an implied contract. That being so the learned Judge was wrong in making anorder staying the suit.

26. Mr. Banerji has contended that if this application forstay is dismissed this Court should make an order staying the arbitrationproceedings. It appears to me that we are not in this case concerned with thearbitration proceedings at all. There is a prayer in the suit as framed for aninjunction restraining the defendants from proceeding with these arbitrationproceedings. It will be open to the plaintiffs, if they deem it proper, to movethe Court for an ad interim order staying these proceedings. On the other hand,it will of course be open to the present respondents to move the Court todismiss this suit altogether on the grounds which have been put forward beforeus, namely, that the suit is frivolous and vexatious and not maintainableaccording to law.

27. Before concluding I should like to refer to one argumentwhich was addressed to us, namely, that as there were allegations of fraud inthis case, the matter should be tried by a Court and not by an arbitrator. Thecase of Narsingh Prasad v. Dhanraj Mills, : A.I.R. 1943 Pat53 : (21 Pat. 544) was relied upon to support this contention. In that case Idelivered judgment and followed the English decision Russell v. Russell, (1880)42 L.T. 112 : (14 Ch. D. 471). The Bench of which I was a member were of theview that where allegations of fraud are made against a person that person hasa right to ask a Court to go into those allegations rather than an arbitratorand that in such a case a Court will refuse to stay a suit although thecontract giving rise to the suit contains an arbitration clause. That class ofcases to my mind has no relevance in the present case. The case of NarsinghPrasad v. Dhanraj Mills, (: A.I.R. 1943 Pat. 53 [LQ/PatHC/1942/64] : 21 Pat.544) was a case in which a suit had been brought on the contract and thequestion arose whether or not it was a fit case to be stayed under S. 34,Arbitration Act. In the present case the point to be decided is entirelydifferent. Here the suit is based on causes of action wholly apart from thecontract and therefore entirely different considerations apply. That being so,this Patna Bench decision based upon English cases has no relevance at all inthe present dispute.

28. In my judgment this is not a suit which can be stayedunder S. 34, Arbitration Act and that being so this appeal must be allowed. Thedecision of the learned single Judge is set aside and the application for staydismissed. In the circumstances, I would make no order as to costs in thisCourt or in the Court below.

B.K. Mukherjea, J.

29. I agree.

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Johurmull Parasram and Ors. vs. Louis Dreyfus and Co. Ltd.(18.11.1947 - CALHC)