Appeal No 426 of 1964
Appeal by special leave from the judgment and order dated February 22 1962 of the Punjab High Court Circuit Bench at Delhi in Civil Revision No 311 D of 1958
SP Sinha and Inder Sen Sawhney for the appellant K K Jain and Bishambar Lal for the respondent
The Judgment of the Court was delivered by Ramaswami J
This appeal is brought by special leave from the judgment of the Punjab High Court dated February 22 1962 in Civil Revision No 331 D of 1958 whereby the High Court upheld and confirmed the judgment of the Appellate Court and set aside the judgment of the trial court staying proceedings in the suit
The Uttar Pradesh Co operative Federation Limited herein after referred to as the Society  was registered under the Cooperative Societies Act No II of 1912 at Lucknow and was carrying on the business of plying public carriers on Kanpur Delhi route
The Society had been granted for this purpose permits by the Uttar Pradesh Government and Delhi Administration for seven vehicles
In March 1954 the Society entered into an agreement with the plaintiffs Ms Sunder Brothers through Bimal Kumar Jain and Dhan Kumar Jain by which they were appointed as Managing Agents for carrying on the business as public carriers
The terms of the Managing Agency agreement were embodied in a letter dated March 2 1954 written by the Secretary of the Society
Clause 28 of the agreement reads as follows That in the event of there being any dispute regarding the terms and conditions of this agreement and your appointment hereunder as Managing Agents of the aforesaid business or any matter arising from and relating thereto or the subject matter thereof such dispute shall be decided by arbitration as provided under Co operative Societies Act II of 1912 and you undertake and agree to be bound by the provisions for arbitration in the said Act
The agreement was to last for a period of three years but on July 5 1954 the Society terminated the agreement by its letter dated July 5 1954 The plaintiffs therefore brought a suit on August 217 18 1954 in the Court of the Subordinate Judge First Class Delhi praying for a declaration that the termination of the Managing Agency agreement by the Society was illegal and the plaintiffs were entitled to continue the business of Managing Agents in accordance with the terms and conditions of the agreement
The plaintiffs prayed for a mandatory injunction restraining the defendant Society from terminating the agreement
The Society made an application under section 34 of the Indian before the Subordinate Judge Delhi for an order for staying the suit
It was claimed by the Society that the suit was not main tainable because under section 51 of the Co operative Societies Act the dispute was to be adjudicated upon by the Registrar of Co operative Societies
In the alternative it was alleged that by agreement between the parties the dispute was to be referred to arbitration in accordance with the Co operative Societies Act and consequently proceedings should be stayed
The trial court stayed the proceedings but on the appeal of the plaintiffs the order of the trial court was set aside and the application of the Society under section 34 of the Indian was dismissed
The Society moved the Punjab High Court in revision but the revision application was dismissed and the order of the lower appellate court was confirmed
It is necessary at this stage to set out the relevant provisions of the Indian Act 10 of 1940
Section 34 of this Act states 34
Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred any party to such legal proceedings may at any time before filing a written statement or taking any other steps in the proceedings apply to the judicial authority before which the proceedings are pending to stay the proceedings and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was at the time when the proceedings were commenced and still remains ready and willing to do all things necessary to the proper conduct of the arbitration such authority may make an order staying the proceedings
Section 46 provides as follows 46
The provisions of this Act except sub section 1 of section 6 and sections 7 12 36 and 37 shall apply to every arbitration under any other enactment for the time being in force as if the arbitration were pursuant to an 5301 16a 218 arbitration agreement as if that other enactment were an arbitration agreement except in so far as this Act is in
consistent with that other enactment or with any rules made thereunder
Section 47 reads as follows 47
Subject to the provisions of section 46 and save in so far as is otherwise provided by any law for the time being in force the provisions of this Act shall apply to all arbitrations and to all proceedings thereunder Provided that an arbitration award otherwise obtained may with the consent of all the parties interested be taken into consideration as a compromise or adjustment of a suit by any Court before which the suit is pending
There was some controversy in the lower courts as to whether the arbitration under cl 28 of the agreement was a statutory arbitration and whether section 46 of the Indian was applicable to the case
It was argued by Mr Sinha on behalf of the appellant Society that no statutory arbitration is created by cl 28 of the agreement but the parties had merely agreed to act in accordance with the provisions of the Co operative Societies Act Act 11 of 1912 and the Rules made thereunder
It was contended that the parties had merely incorporated the statutory provisions by reference in their agreement and section 47 of the Indian will therefore be applicable to the case
This legal position was not controverted by Mr K K Jain appearing on behalf of the respondent
The only question in debate was whether the lower court rightly exercised their jurisdiction under section 34 of the Indian in not granting the stay of the proceedings of the suit
If the arbitration agreement is not to be treated as a statutory arbitration under section 46 of the but an arbitration agreement under section 47 of the Act then the procedure to be followed for the arbitration under that agreement will be that provided under the Co operative Societies Act and the Rules framed thereunder
Under section 47 of the Indian the arbitration will be governed only by such rules of the Co operative Societies Act and rules framed thereunder as are not inconsistent with the provisions of the Indian 
In this con nection it is necessary to refer to Rules 115 116 and 117 of the Co operative Societies Rules framed under section 43 of the Co operative Societies Act
Rule 115 states as follows Any dispute touching the business of a registered society i between members or past members of a society or persons claiming through a member or past member ii or between a member or a past member or persons so claiming and the society or its committee or 219 any officer of the society iii between the society or its committee and any officer of the society and iv between two or more registered societies shall be decided either by the Registrar or by arbitration and shall for that purpose be referred in writing to the Registrar
Rule 116 provides The Registrar on receipt of a reference shall either decide the dispute himself or refer it for decision to an arbitrator or to two joint arbitrators appointed by him or to three arbitrators of whom one shall be nominated by each of the parties to the dispute and the third by the Registrar who shall also appoint one of the arbitrators to act as chairman
Rule 117 states In case it is decided to appoint three arbitrators i The Registrar shall issue a notice calling on each of the parties to nominate one person as its nominee within 15 days of the receipt of the notice
ii if a party consists of more than one person such persons shall jointly make only one nomination
iii if more than one person is nominated by a party the Registrar shall appoint either one of the nominees or some other person of his own choice as the nominee of that party iv if a party fails to nominate an arbitrator within the appointed time or if its nomination is not valid the Registrar may himself make the nomination v if one of the arbitrators fails to attend or refuses to work as an arbitrator the remaining arbitrators may decide the dispute
If two of the arbitrators fail to attend or refuse to work as arbitrators and the claim is not admitted the remaining arbitrator shall refer the case to the Registrar who may authorise him to give an award or appoint one or more arbitrators to proceed with the reference or he may decide the case himseff
It has been observed by the High Court that it would be a difficult task for the arbitrator to investigate as to which of the rules made under the Co operative Societies Act are consistent with and which of those rules are not consistent with the provisions of the Indian and therefore it was a fit case in which discretion of the court under section 34 of the Indian should be exercised in not staying the proceedings of the suit
In our opinion the reasoning of the High Court has much substance
220 There is also another reason why there should not be a stay of the proceedings under section 34 of the Indian 
The suit was filed in 1954 and though 12 years have elapsed nothing has been done in the suit and it will not be in the interest of speedy disposal of the suit between the parties if the proceedings in the suit are further stayed and the parties are referred to arbitration
There is also another ground why the proceedings in the suit should not be stayed in the present case
If Rules 115 and 116 of the Co operative Societies Rules are applicable then the reference of the dispute has to be made to the Registrar of the Co operative Societies who may either decide the dispute himself or refer the dispute to an arbitrator or two joint arbitrators appointed by him or to three arbitrators of whom one shall be nominated by each of the parties to the dispute and the third by the Registrar who shall also appoint one of the arbitrators to act as Chairman
It is alleged by the respondent that the Registrar of Co operative Societies is ex officio President of the Society and it was with his approval that the agreement in dispute was terminated
It was also pointed out that the Registrar was the chief controlling and supervising officer of the Society under its bye laws
It was submitted for the respondent that the Registrar may not therefore act fairly in the matter and it is improper that he should be an arbitrator in the dispute between the parties
In our opinion there is much validity in this argument
The legal position is that an order of stay of suit under section 34 of the Indian will not be granted if it can be shown that there is good ground for apprehending that the arbitrator will not act fairly in the matter or that it is for some reason improper that he should arbitrate in the dispute between the parties
It is of course the normal duty of the Court to hold the parties to the contract and to make them present their disputes to the forum of their choice but an order to stay the legal proceedings in a Court of law will not be granted if it is shown that there is good ground for apprehending that the arbitrator will not act fairly in the matter or that it is for some reason improper that he should arbitrate in the dispute
Reference may be made in this connection to the decision of the House of Lords in Bristol Corporation vs John And  Co1
This case was concerned with an application for stay of proceedings under section 4 of the English which is similar to section 34 of the Indian 
Upon the settlement of the final account there arose a bona fide dispute of a substantial character between the contractor and the engineer who was the arbitrator under the contract involving a probable conflict of evidence between them
The House of Lords held affirming the decision of the 11913 AC 241
221 Court of appeal that the fact that the engineer without any fault of his own must necessarily be placed in the position of a Judge and a witness is a sufficient reason why the matter should not be referred in accordance with the contract
At pp
247 248 of the report Lord Atkinson stated as follows Whether it be wise or unwise prudent or the contrary he has stipulated that a person who is a servant of the person with whom he contracts shall be the judge to decide upon matters upon which necessarily that arbitrator has himself formed opinions
But though the contractor is bound by that contract still he has a right to demand that notwithstanding those preformed views of the engineer that gentleman shall listen to argument and determine the matter submitted to him as fairly as he can as an honest man and if it be shown in fact that there is any reasonable prospect that he will be so biased as to be likely not to decide fairly upon those matters then the contractor is allowed to escape from his bargain and to have the matters in dispute tried by one of the ordinary tribunals of the land
But I think he has more than that right
If without any fault of his own the engineer has put himself in such a position that it is not fitting or decorous or proper that he should act as arbitrator in any one or more of those disputes the contractor has the right to appeal to a Court of law and they are entitled to say in answer to an application to the Court to exercise the discretion which the 4th section of the vests in them We are not satisfied that there is not some reason for not submitting these questions to the arbitrator
In the present case the question is has that taken place Lord Moulton after tracing the growth of the law of arbitration made the following observations in his speech But My Lords it must be remembered that these arbitration clauses must be taken to have been inserted with due regard to the existing law of the land and the law of the land applicable to them is as I have said that it does not prevent the parties coming to the Court but only gives to the Court the power to refuse its assistance in proper cases
Therefore to say that if we refuse to stay an action we are not carrying out the bargain between the parties does not fairly describe the position
We are carrying out the bargain between the parties because that bargain to substitute for the Courts of the land a domestic tribunal was a bargain into which was written by reason of the existing legislation the condition that it should only be enforced if the Court thought it a proper case for its being so enforced
222 Lord Parker after pointing out that section 4 of the  gave a discretionary power to the Court to be exercised after it was  satisfied that there was no sufficient reason why the matter should not be referred in accordance with the submission expressed the  following views In making up its mind on this point the Court must of course give due consideration to the contract between the parties but it should I think always be remembered that the parties may have agreed to the submission precisely because of the discretionary power vested in the Court under the 
They may very well for instance have said to themselves If in any particular case it would be unfair to allow the arbitration we are agreeing to proceed we shall have the protection of the Court
It is manifest that the strict principle of sanctity of contract is subject to the discretion of the Court under section 34 of the Indian  for there must be read in every such agreement an implied term or condition that it would be enforceable only if the Court having due regard to the other surrounding circumstances thinks fit in its discretion to enforce it
It is obvious that a party may be released from the bargain if he can show that the selected arbitrator is likely to show bias or by sufficient reason to suspect that he will act unfairly or that he has been guilty of continued unreasonable conduct
As we have already stated the respondent has alleged in the present case that the Registrar Co operative Societies has approved the termination of the contract of Managing Agency with the plaintiff and the Registrar was the chairman of the defen dant Society
We are accordingly of the opinion that the High Court properly exercised its discretion under section 34 of the Indian in not granting a stay of the proceedings in the suit
It is well established that where the discretion vested in the Court under section 34 of the Indian has been exercised by the lower court the appellate court should be slow to interfere with the exercise of that discretion
In dealing with the matter raised before it at the appellate stage the appellate court would normally not be justified in interfering with the exercise of the discretion under appeal solely on the ground that if it had considered the matter at the trial stage it may have come to a contrary conclusion
If the discretion has been exercised by the trial court reasonably and in a judicial manner the fact that the appellate court would have taken a different view may not justify interference with the trial court s exercise of discretion
As is often said it is ordinarily not open to the appellate court to substitute its own exercise of discretion for that of the trial Judge but if it appears to the appellate court that in exercising its discretion the trial court has acted unreasonably or capriciously or has ignored relevant facts then it would certainly be open to the appellate court 223 to interfere with the trial court s exercise of discretion
This principle is well established but as has been observed by Viscount Simon L C in Charles Osenton  Co vs Johnston1 The law as to the reversal by a court of appeal of an order made by a Judge below in the exercise of his discretion is well established and any difficulty that arises is due only to the application of well settled principles in an individual case
For these reasons we hold that the appellant has made out no case for our interference with the order of the High Court refusing stay of the proceedings in the suit under section 34 of the Indian 
The appeal accordingly fails and is dismissed with costs
Appeal dismissed


Summary:
The appellant society carried on business as public carriers on the Kanpur Delhi route
By an agreement in 1954 they appointed the respondents as their Managing Agents for a period of 3 years
But much before the expiry of that period they terminated the agreement
Disputes arising between the parties were under the agreement to be decided by arbitration as provided in the Co operative Societies Act II of 1912
According to the relevant provisions of the said Act disputes were to be decided by the Registrar of Co operative Societies or by an arbitrator or arbitrators appointed by him
The respondents however filed a suit against the Society asking for a declaration that the termination of the agreement by the society was illegal and for a mandatory injunction restraining the society from terminating the agreement
The Society thereupon filed an application under section 34 of the Indian Arbitration Act praying for a stay of the aforesaid suit on the ground that the respondents had agreed to arbitration as provided in the Co operative Societies Act
The trial Court stayed the suit but the appellate Court set aside the trial Court s order and dismissed the application under section 34
The High Court upheld the appellate Court s order whereupon by special leave the society appealed to this Court
HELDi The High Court rightly refused to stay the suit
It rightly observed that it would be a difficult task for the arbitrator to investigate as to which of the rules made under the Co operative Societies Act are consistent with and which of those rules are not consistent with the provisions of the Indian Arbitration Act
The suit moreover was filed as far back as 1954 and its stay would not be in the interests of its speedy disposal
219 G 220 B iiIt is of course the normal duty of the court to hold the parties to the contract and to make them present their disputes to the forum of their choice but the strict principle of sanctity of contract is subject to the discretion of the Court under section 34 of the Indian Arbitration Act
A party may be released from the bargain if he can show that the selected arbitrator is likely to show bias or there is sufficient reason to suspect that he will act unfairly or that he has been guilty of unreasonable conduct
222 D In the present case the respondent had alleged that the Registrar Co operative Societies had approved the termination of the contract of Managing Agency with the plaintiff and the Registrar was the Chairman of the Defendant Society
In the circumstances the High Court Trust be held to have Properly exercised its discretion under section 34 of the Indian Arbitration Act in not granting a stay of the proceedings in the suit
222 E
216 Bristol Corporation vs John Aird  Co  referred to
iiiIf it appears to the appellate Court that in exercising its discretion the trial court has acted unreasonably or capriciously or has ignored relevant facts then it would certainly be open to the Appellate Court to interfere with the trial court s exercise of discretion 222 H Charlies Osenton  Co vs Johnston  referred to