Civil Appeal No 262 of 1955
Appeal by special leave from the judgment and decree dated February 4 1953 of the Calcutta High Court in Appeal from original decree No 68 of 1952 arising out of the judgment and decree dated  January 14 1952 of the said High Court in Special Suit No 2 of 1951
571 N C Chatterjee C B Agarwala and Sukumar Ghose for the appellants
B Sen section N Mukherjee section N Andley J B Dadachanji and Rameshwar Nath for the respondents
August 21
The Judgment of the Court was delivered by WANCHOO J
This is an appeal by special leave against the judgment of the Calcutta High Court
The appellant is a company incorporated in India with its registered office in Calcutta dealing in jute
It entered into a contract on June 18 1945 with the respondent company which is incorporated in England and has its registered office in London
The contract was for the supply of five hundred bales of jute of crop 1945 46 to be shipped from Calcutta or Chittagong to Rio de Janeiro when freight became available
The contract provides that in the event of default of tender or delivery the seller shall pay to the buyer as and for liquidated damages 10s
per ton plus the excess if any of the market value over the contract price the market value being that of jute contracted for on the day following the date of default
This date was to be the date in London on declaration of default by telegram or without such declaration if default was eventually made by lapse of time on the 21st day after expiry of the extended period
There is also a provision for arbitration which lays down that any claim or dispute whatever arising out of or in relation to this contract or its construction or fulfilment shall be referred to arbitration in London in accordance with the bye laws of the London Jute Association and it was open to either party to claim arbitration whenever and as often as disputes arose
The contract also provides for an appeal by any party dissenting from an arbitration award to the London Jute Association in accordance with the regulations in force for the time being
Lastly it is provided that the contract would be construed according to the laws of England whatever the residence and nationality of the parties might be or become and would be deemed to be performed there
The courts of England or 572 arbitrators as the case might be would have exclusive jurisdiction over all disputes which might arise under the contract except for the purpose of enforcing in the Colonies or abroad any arbitration award made under this contract On
June 23 1947 thirty nine bales of jute were consigned by the appellant to Rio de Janeiro in part performance of the contract and information of this was given to the respondent by letter on July 17 1947
It was said in this letter that difficulty had arisen because of the non availability of quota and it was hoped that the balance remaining under the contract would be shipped as soon as quota was available
The respondent sent a reply to this letter on July 25 1947 and the appellant wrote a further letter on August 1 1947 in which it was said that the remaining amount of jute under the contract would be shipped as soon as the quota was available
We do not know what happened thereafter till we come to August 1948
It seems that the respondent received a cable on August 12 1948 from the appellant stating that the contract stood cancelled long ago
The respondent by its letter dated August 12 1948 refused to accept this position
Thereafter there were disputes and differences between the parties and eventually the respondent claimed default on or about June 1949 in terms of the contract
On or about July 14 1949 the respondent referred the matter to the arbitration of the London Jute Association which appointed two of its member as arbitrators
The respondent filed its claim before the arbitrators on July 23 1949
On July 27 1949 the arbitrators gave notice to the appellant to file its answer by August 19 1949
The appellant however filed no answer before the arbitrators
What the appellant did in reply was to file an application under section 33 of the Indian hereinafter called the  on the original side of the Calcutta High Court in which it made three prayers namely a declaration that the arbitration agreement if any between the parties was void ab initio on the 573 ground of uncertainty and was not binding on the appellant b declaration that there was in fact and in law no contract between the parties on account of mutual mistake of the parties and c that the court might be pleased to adjudicate on the existence andor validity of the alleged arbitration agreement and the effect of the same
This application was moved on August 12 1949
It appears that on August 13 1949 the appellant sent a cable to the respondent and the London Jute Association informing them that an application had been made in the Calcutta High Court challenging the submissions contained in the contract and that the arbitrators had become functus officio pending disposal of the application which was fixed for August 29
The appellant received a reply to its cable in which it was asserted that no such application as the appellant bad made to the Calcutta High Court could be made there and that the arbitrators would proceed with the adjudication on August 27 as already fixed
On August 17 1949 the appellant sent a letter to the London Jute Association in which it referred to its cable and the reply of the Association to that and reiterated its stand that any further steps taken in the arbitration proceedings pending disposal of the application under section 33 would be invalid under the 
The arbitrators however proceeded with the arbitration and gave their award on October 17 1949
No proceedings thereafter were taken by the appellant in London nor does it appear that any steps were taken by it to have its application under section 33 decided till we come to November 26 1951
On that date an application was filed by the respondent in the Calcutta High Court under section 5 of the  hereinafter called the Protocol Act
Along with this application it filed the award dated October 17 1949 and prayed that judgment be pronounced in accordance with the award and decree be passed accordingly
Notice of this was issued to the appellant which filed its reply on January 14 73 574 1952 We do not think it necessary to set  out the petition of the respondent under section 5 of the Protocol Act and the appellant s reply thereto in detail because when the matter came to be heard in court only two points were urged on behalf of the appellant namely 1 that the award was made after the notice of filing of the petition dated August 10 1949 under section 33 of the had been given to the respondent and the arbitrators and consequently the award made after the receipt of the said notice and during the pendency of the said application was bad under section 35 of the  and 2 that the award was bad on the face of it and could not therefore be enforced in view of the provisions of section 7e of the Protocol Act which lays down that an award cannot be enforced in India if it is contrary to the law of India
It was contended that the award was contrary to the law of India and this appeared on the face of it inasmuch as the arbitrators had purported to award such damages as could not be done under the provisions of the 
Both these contentions were negatived by the learned Single Judge and he ordered the award to be filed in court and passed a decree in terms thereof
The appellant then went up in appeal which was heard by a Division Bench of the Calcutta High Court
The grounds of appeal show that the same two points which were urged before the learned Single Judge  were reiterated therein
When the matter came to be heard before the Division Bench the same two points were raised on behalf of the appellant there also
The Division Bench negatived the two contentions raised before it on behalf of the appellant and confirmed the judgment of the learned Single Judge
It is curious however  to notice that though all these proceedings were being taken on the application under section 5 of the Protocol Act the appellant apparently took no steps to have its application under section 33 of the  which seems to have been adjourned sine die decided along with the respondent s application under section 5 of the Protocol Act 575 This was followed by an application for a certificate to appeal to this Court which was refused
Then the appellant applied to this Court for special leave to appeal which was granted
In the special leave petition also the appellant raised the same to points namely i the construction of sections 33 and 35 of the and the application of these provisions to the facts of this case and ii the construction of section 7 of the Protocol Act and the with respect to the damages awarded by the award
In the statement of case also after narrating the facts and circumstances the same two points were mentioned as the principal questions which arose for determination in the appeal namely i the effect of sections 33 and 35 of the on the facts and circumstances of this case and ii the interpretation of section 7 of the Protocol Act in the light of sections 73 and 74 of the and their bearing on the damages awarded by the arbitrators and its effect on the validity of the award
Learned counsel for appellant however wanted to raise before us other points arising out of section 7 of the Protocol Act
We do not think that the appellant should be permitted to raise at this late stage any new point in addition to the two points which were urged before the learned Single Judge and which only have all along been raised in the appeal to the High Court and in the appeal before this Court
We shall therefore confine the appellant to these two points only and proceed on the assumption in the same manner as has been done by the High Court namely that an application under section 33 of the would lie in the circumstances of this case and therefore the provisions of section 35 of the would be attracted
The part of section 33 of the  relevant for our purpose lays down that any party to an arbitration agreement desiring to challenge the existence or validity of an arbitration agreement or to have its effect determined shall apply to the court and the court shall decide the question
It will thus be clear that 576 s33 contemplates an application for three purposes namely i when it is desired to challenge the existence of an arbitration agreement ii when it is desired to challenge its validity and iii when it is desired to have its effect determined
An arbitration agreement may come into existence in one of two ways it may either arise out of an agreement which contains nothing else besides the arbitration agreement or it may arise out of a term contained in a contract which deals with various other matters relating to the contract which is the present case
Where one is dealing with an arbitration agreement of the second kind section 33 is concerned only with the term relating to arbitration in the contract and not with the other terms of the contract which do not arise for consideration on an application under that section
Then we come to section 35
It provides that no reference or award shall be rendered invalid by reason only of the commencement of legal proceedings upon the subject matter of the reference but when legal proceedings upon the whole of the subject matter of the reference has been commenced between all the parties to the reference and a notice thereof has been given to the arbitrators or umpire all further proceedings in a pending reference shall unless a stay of proceedings is granted under section 34 be invalid
It will be seen therefore that section 35 makes proceedings before the arbitrators invalid in the absence of an order under section 34 staying the legal proceedings where whole of the subject matter of the reference is covered by any legal proceedings taken with respect to it
In other words an arbitrator can continue the proceedings and proceed to make the award on the reference unless the whole of the subject matter of the reference is covered by the legal proceedings which have been instituted
Assuming that the proceedings taken under section 33 are  legal proceedings  mentioned in section 35 the question which immediately arises on the facts of the present case is whether the whole of the subject matter of the reference in this case was covered by the legal pro ceedings taken by the appellant by its application under section 33 of the 
577 In dealing with this aspect of the case learned counsel for the appellant raised the question of frustration of the contract and the powers of the court and the arbitrator in that behalf
It is true that the words  frustration of contract  have been used in paragraph 8 of the application
But the prayers do not show that any relief was claimed on that ground relief c being merely a repetition of the words of section 33 of the 
Learned counsel relied on Heymen vs Darwins Ltd 1 in this connection
We do not think we should permit the appellant to raise this contention at this late stage and would content ourselves by pointing out incidentally that even if the dictum in Heymen s case 1 is accepted it will not help the appellant for on that dictum the question of frustration would be for the arbitrators to decide on the basis of the terms used in this contract which are of the widest amplitude and would not be a matter for consideration of the court
On this basis there would be no identity of subject matter between what can be raised in an application under section 33 on the facts of this case and what can be decided by the arbitrators
However we do not propose to pursue this matter any further and to decide it
Then we turn to prayers a and b of paragraph 9 of the application based on paragraphs 6 and 7 thereof
These prayers undoubtedly cannot be the subject matter of arbitration for they go to the very root of the contract and imply that there was no contract between the parties at all and therefore no arbitration agreement
These prayers can certainly form the basis of an application under section 33 for they relate to the existence and validity of the arbitration agreement contained in the contract but not being matters within the competence of the arbitrators there can be no identity of the subject matter under reference to the arbitrators and the subject matter of prayers a and b
The conclusion therefore is that prayers a and b can be the subject matter of an application under section 33 but they cannot be the subject matter of the reference to the arbitrators
Therefore 1 19421 2 AC 356
578 the subject matter of the legal proceedings under section 33 in this case cannot and does not cover any part of the subject matter of the reference
Section 35 in consequence can have no application and the award cannot be assailed as invalid on the ground that it violates section 35 of the 
The first contention therefore must fail
The argument under this head is that the liquidated damages provided under cl
1 2 of the contract include not only the difference between the contract price and the market price on the date of default but also a further sum of 10s
per ton
Reference in this connection is made to sections 73 and 74 of the  and it is said that the extra amount of 10s
per ton included in the sum of liquidated damages is against the provision of these sections and therefore the award being against the law of India is bad on the face of it and should not be enforced in India
Section 73 provides for compensation for loss or damage caused by breach of contract
It lays down that when a contract has been broken the party who suffers by such breach is entitled to receive from the party who has broken the contract compensation for any loss or damage caused to him thereby which naturally arose in the usual course of things from such breach or which the parties knew when they made the contract to be likely to result from the breach of it
Section 74 provides for breach of contract where penalty is stipulated for or a sum is named and lays down that when a contract has been broken if a sum is named in the contract as the amount to be paid in case of such breach or if the contract contains any other stipulation by way of penalty the party complaining of the breach is entitled whether or not actual damage or loss is proved to have been caused thereby to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or as the case may be the penalty stipulated for
What cl
12 of the contract provides in this case is the measure of liquidated damages and that consists of 579 two things namely i the difference between the contract price and the market price on the date of default and ii an addition of 10s
per ton above that
There is nothing in section 73 or section 74 of the Contract Act which makes the award of such liquidated damages illegal
Assuming that the case is covered by section 74 it is provided therein that reasonable compensation may be awarded for breach of contract subject to the maximum amount named in the contract
What the arbitrators have done is to award the maximum amount named in the contract
If the appellant wanted to challenge the reasonableness of that provision in cl
12 it should have appeared before the arbitrators and represented its case
It cannot now be heard to say that simply because cl
12 provided for a further sum of 10s
per ton over and above the difference between the contract price and the market price on the date of the default this was per se unreasonable and was therefore bad according to the law of India as laid down in sections 73 and 74 of the Contract Act
Both these sections provide for reasonable compensation and section 74 contemplates that the maximum reasonable compensation may be the amount which may be named in the contract
In this case the arbitrators have awarded the maximum amount so named and nothing more
Their award in the circumstances cannot be said to be bad on the face of it nor can it be said to be against the law of India as contained in these sections of the Contract Act
The second contention must also fail
We therefore dismiss the appeal with costs to the respondent
Appeal dismissed


Summary:
The appellant was put up on trial on charges under sections 51a and 51d of the Prevention of Corruption Act 1947
Payments of particular sums by way of bribe were not proved against him
But the High Court holding that the appellant s bare statements from the dock unsupported by any other acceptable evidence could not satisfactorily account for the large deposits standing to his credit in his bank accounts raised the presumption under section 53 of the Act and held him guilty of criminal misconduct in the discharge of his official duty under section 51d of the Act concerning the conviction and sentence passed on him by the 462 special Magistrate
It was contended on behalf of the appellant that the charge relating to specific instances of bribery having failed the contrary to the presumption under section 53 Of the Act should have been held as established and in absence of any finding that his statements were false it should have been held that the charge against him had not been proved beyond all reasonable doubt
Held that section 53 of the Prevention of Corruption Act did not create a new offence but only laid down a rule of evidence that empowered the Court to presume the guilt of the accused in certain circumstances contrary to the well known principle of criminal law that the burden of proof was always on the prosecution and never shifted on to the accused
The Legislature by using the expression  satisfactorily account  in section 53 of the Act cast the burden on the accused not only to offer a plausible explanation as to how he came by the large wealth disproportionate to his known sources of income but also to satisfy the court that his explanation was worthy of credence
Consequently cases under the general law where it had been held that the accused could be exonerated if he offered a plausible explanation could have no application
The expression  known sources of income  used in that section referred to such sources of income as became known to the prosecution as a result of the investigation and could not mean those that were witthin the special knowledge of the accused and it was no part of the duty of the prosecution to lead evidence in that regard
Where the prosecution fulfilled the conditions laid down by the earlier part of section 53 Of the Act the statutory presumption had to be raised and it would be for the accused to rebut the same by cogent evidence
Rex vs Carrbriant  and Otto George Gfeller vs The King AIR 30  Hate Singh Bhagat Singh vs State of Madhya Bharat AIR 1953 SC 468 and Regina vs Dunbar  held inapplicable
The failure to substantiate a charge under section 51a of the Act on evidence would not necessarily mean an acquittal in respect of a charge under section 51d of the Act
If the requirements of the earlier part of section 53 were established by evidence conviction for criminal misconduct under section 51d based on the presumption under section 53 Of the Act would be perfectly valid in law