Appeal No 328 of 1961
Appeal by special leave from the judgment and order dated February 2 1961 of the Punjab High Court Circuit Bench at Delhi in Civil Revision Application No 135 D of 1957
Din Dayal Sharma and N N Keswami for the appellant
K Daphtary Solioitor General of India V D Mahajan and TM Sen for the respondent
September 25
The Judgment of the Court was delivered by GAJENDRAGADKAR J
The principal point which this appeal by special leave raises for our decision relates to the construction of sections 32 and 33 of the 10 of 1940 hereafter called the Act
That question arises in this way
The respondent Union of India filed a petition in the Court of the First Class Sub Judge at Delhi against the appellant Ms J Burman  Co through its proprietor Jawahar Lal Burman under sections 33 and 28 of the Act
The respondent alleged that a concluded contract had been entered into between the parties on August 31 1949 for supply of 170 12 Cwt
of cocoanut oil by the appellant to the respondent
The respondent had advertised in the Indian Trade Journal for the said supply and the appellant had submitted its tender No SM I1104524
772 This tender was accepted by the respondent which concluded a contract between the parties
The respondent s case was that the said contract was governed by general conditions of contract Form W SB 133
 These conditions included an arbitration agreement Disputes arose between the parties regarding the said contract and so in pursuance of the arbitration agreement they were referred to the two arbitrators appointed by the parties
After the arbitration propeedings had gone
on for a considerable time before the arbitrators the appellant objected to their jurisdiction to  deal
with the disputes on the ground that there was No concluded contract between the parties
This plea made it necessary for the respondent to move the Court for a decision of the question about the existence and validity of the arbitration agreement
It was on these allegations that the respondent in its petition claimed that it may be held that there was a concluded contract between  the parties containing a valid arbitration agreement
The petition having been made under section 28 along with section 33 the respondent prayed that suitable extension of time be granted to the Arbitrators for making the award
The appellant pleaded in defence that no concluded contract had been made between the parties and that there was no jurisdiction in the Court to grant extension under s 28
The other allegations made by the respondent in its petition were also traversed
On these pleadings the learned trial judge framed appropriate issues
He found that a concluded contract had been proved between the parties as alleged by the respodent
that there was a valid arbitration agreement in the said contract and that the Court had jurisdiction to
try the petition
Incidentally it may be pointed out at this stage that no specific point had been raised in the pleadings of the appellant that the Court had no jurisdiction to entertain the petition under section 33 or
section 32 of the Act
In fact the trial judge has observed that it was not shown to him how the 773 application was incompetent
Consistently with the findings recorded by him the learned trial judge declared that there was a concluded contract between the parties under which the matter was duly referred to arbitration through an arbitration agreement clause in the contract
As a result of the declaration he held that there was a valid reference to arbitration between the parties
Consequently he granted a month s time to the arbitrators to make their award
This decision was challenged by the appellant by its revision petition preferred in
the High Court of Punjab at Chandigarh
The High Court has confirmed the finding of the trial court that there was a concluded contract which contained an arbitration agreement
The question of jurisdiction under section 33 of the Act was argued before the High Court and its attention was drawn to the conflict of judicial decisions on
the point
The High Court however held that since the petition has been filed as a composite application under sections 28 and 33 it was open to the Court under a 28 to enter upon the question of the existence or validity of the contract and so there was no substance in the point of jurisdiction raised by the appellant
In the result the appellant s revision application was dismissed
It is against this decision that the appellant has come to this Court by special leave  and on his behalf Mr Din Dayal has raised the same two points for our decision
He contends that the High Court was in error in holding that the trial court bad jurisdiction to entertain the respondent s petition and he argues that even if the point of jurisdiction raised by him fails it should be held that there was no concluded contract between the parties and so
there was no scop or room for making any reference to arbitration
The first of these two contentions has been seriously pressed before us
Before dealing with the question of jurisdiction it is necessary to recall the material facts which 774 have led to the present dispute
The appellant and the respondent nominated their arbitrators
The arbitrators heard the matter at length and the proceedings bad reached a stage when an award might have been pronounced
It was then that the appellant chose to obstruct the further progress of the proceedings by raising the plea that there was no concluded contract
Even then he refused to apply under section 33 and so a stalemate issued because the arbitrators  were not entitled to proceed further with the arbitration proceedings in view of the point raised by the appellant
It is necessary to bear in mind this background of the dispute in considering the point of jurisdiction
The question of jurisdiction raised by the appellant has to be answered in the light of the construction which can be reasonably placed on the material provisions of sections 32 and 33 of the Act
It may be conceded at the outset that the question thus raised presents some difficulty
Sections 32 and 33 read thus 32
Notwithstanding any law for the time being in force no suit shall lie on any ground whatsoever for a decision upon the existence effect or validity of an arbitration agreement or award nor shall any arbitration agreement or award be set aside amended modified or in any way affected otherwise than as provided in this Act
Any party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the Court and the Court shall decide the question on affidavits Provided that where the Court deems it just and expedient  it may set down the application for hearing on other evidence 775 also and it may pass such orders for dis covery and particulars as it may do in a suit
 In appreciating the effect of these two provisions it would be relevant to remember that the object of the Legislature in enacting the two sections quite clearly was to prevent the abuse of the process of the Court
Before the present Act was passed experience showed that unscrupulous and dishonest parties to the arbitration agreements frequently chose to deny the existence of the said agreements even after the arbitration proceedings had concluded and ended in awards and that tended to make all arbitration proceedings futile
More often than not these pleas ultimately failed but it meant considerable delay and waste of time and substantial expense
That is why sections 32 and 33 have been enacted with the object of bringing the relevant disputes for decision before the specified Courts in the form of petitions
It is significant that under s312 of the Act all questions regarding the validity effect or existence of an award or an arbitration agreement between the parties to the agreement or persons claiming under them shall be decided by the Court in which the award under the agreement has been or may be filed and by no other Court
Indeed s2c defines a Court as meaning a Civil Court having jurisdiction to decide the questions forming the subject matter of the reference if the same had been the subject matter of a suit but does not except for the purpose of arbitration proceedings under section 21 include a Small Cause Court
Therefore stated broadly it would be correct to assume that the main object of introducing the new provisions of sections 31 32 and 33 was to entrust the decision of the relevant disputes to the specified Court and to require the parties to bring the said disputes for the decision of the said Court in the form of petitions
Remedy by a regular suit is intended to be excluded
776 Section 32 creates a bar against the institution of suits and it provides that if the existence effect or validity of an arbitration agreement or award is in dispute on any ground whatsoever no suit shall lie for the adjudication of the said dispute
It also provides that no suit shall lie to set aside amend or modify or in any way affect an arbitration  agreement or an award
It would be noticed that the clause on any ground whatsoever is very wide and it denotes inter alia that if the existence or validity of an arbitration agreement is questioned on any ground whatever it cannot be the subject matter of a suit the said dispute shall be tried as provided in this Act
Thus there can be no doubt that if a party affirms the existence of an arbitration agreement or its validity it is not open to the party to file a suit for the purpose of obtaining a declaration about the existence of the said agreement or its validity
Such a suit in terms is barred by section 32
This position is
not disputed
The bar to the suit thus created by section 32 inevitably raises the question as to what remedy it is open to a party to adopt in order to obtain an appropriate declaration about the existence or validity of an arbitration agreement and it is on the decision of this question that the parties are at issue before us
Before answering this question we may conveniently consider the scope of section 33 and its effect
Section 33 consists of two parts
The first deals with a challenge to the existence or validity of an arbitration agreement or an award and it provides that the persons there in specified can apply to the Court to have a decision on its challenge to the existence or validity of an arbitration agreement or an award
In other words there is no doubt that it is only persons who challenge the existence of the arbitration agreement that can apply under the first part of section 33
This position is also not disputed
The second part of the section refers to applications made to have the effect of either the arbitration agreement or the award determined
The question 777 which we have to consider is whether a person affirming an arbitration agreement can apply under the latter part of section 33
Even assuming that the requirement that an application can be made under the first part of section 33 only by persons desiring to challenge the arbitration agreement does not apply to its latter part it is difficult to hold that an application to have the effect of the arbitration agreement determined can legitimately cover the dispute as to the existence of the said arbitration agreement
It is clear that the first part of section 33 refers to the existence or validity in terms and sections 31 and 32 also refer separately to the existence effect or validity
Therefore the effect of an arbitration agreement is treated as distinct from the existence of the agreement and where it was intended to refer to the existence as well as the effect of such an agreement both the words existence and effect have been specifically used
Thus under the latter part of section 33 an application can be made to have the effect or purport of the agreement determined but not its existence
That means that an application to have the effect of the agreement can be made provided the existence of the agreement is not in dispute
Besides if a person affirming the existence of an agreement is held entitled to apply to the Court under the latter part of s33 for getting a declaration about the said existing agreement then the first part of section 33 would be wholly superfluous
Therefore it seems to us that a party affirming the existence of an arbitration agreement cannot apply under section 33 for obtaining a decision that the agreement in question exists
In fairness we ought to add that the learned Solicitor General who appeared for the respondent did not dispute this position
If the party affirming the existence of an arbitration agreement cannot apply under s33 what is the remedy open to him This question takes us back to section 32
If section 32 has created a bar against the institution of a suit for obtaining 778 a declaration about the existence of an arbitration agreement unless it is held that the creation of the said absolute bar itself involves the right to make an application under the Act it would lead to the anomalous result that a party is given no remedy to enforce the right  and it is an ordinary rule of construction that such an unreasonable and unconscionable result should as far as possible be avoided because the Legislature could not have intended such a result
In our opinion having regard to the scheme of sections 31 32 and 33 it would not be unreasonable to hold that in matters which fall within the bar created by s32 if a suit cannot be filed it 119 necessarily intended that an application can be made and such an application can be made under the Court s powers provided for by s31 and impliedly recognised by section 32
On this construction section 33 cannot be treated as exhaustive of all cases where applications can be made
The Legislature has provided for the said cases under section 33 because it was thought that they represented the usual type of cases which arise under the arbitration agreements A contrary view would lead either to a stalemate or would in substance compel the party affirming the existence of an agreement to forego the procedure prescribed by the said agreement and sue on the contract itself
We are satisfied that a fair construction of sections 31 32 and 33 does not lead to such an anomalous position
Mr Din Dayal contends that there is really a lacuna in the Act inasmuch as having created a bar by section 32 the Legislature has failed to provide a remedy by way of an application
On reading sections 31 32 and 33 together we do not think the Court is driven to the conclusion that there is a lacuna in the Act
In this connection it is material to remember that even in dealing with applications under the first part of section 33 the Court may accept the opponent s plea and hold that the arbitration agreement exists if the challenge to the said existence set out in the petition is rejected
In other words in many 779 cases applications made under the first part of a 33 may end in the finding that the arbitration agreement exists
Similarly in applications made under s20 of the Act if a dispute arose as to the existence of the arbitration agreement the Court may find in favour of the existence and make an order of reference as contemplated by a 24
Thus it is clear that in the applications expressly provided for by these two sections a party affirming the existence of the agreement would be entitled to prove the said existence and if he succeeds he would obtain a decision to that effect
Therefore in holding that section 32 impliedly recognises the inherent jurisdiction of the Court to entertain applications made by the parties affirming the existence of arbitration agreements we are bringing the provisions of s32 in line with the provisions of sections 33 and 20
Indeed section 33 is a corollary of section 32 and in a sense deals by way of illustration with the most usual type of cases arising in arbitration proceedings
Section 28 of the Act has no material bearing on the decision of this point
The power to enlarge time for making the award which is the subject matter of the provisions of section 28 cannot be hold to include a power to entertain petitions like the present
Indeed the learned Solicitor General has not attempted to justify the conclusion of the High Court that s28 confers such a power
Even if it is held that there is inherent jurisdiction in the Court to entertain an application in support of the existence of an arbitration agreement the question still remains whether an application can be made under such inherent jurisdiction for a declaration that the contract which includes the arbitration agreement as defined by section 2a includes cases where the arbitration agreement is made a part of the contract itself
The argument is that though an application may be made under the inherent jurisdiction of the Court to obtain a declaration about the existence or validity of an arbitration agreement no such application can be 780 made to obtain a declaration about the existence or validity of the main contract itself
In dealing with this argument it would be necessary to have regard to the substance rather than the form of the matter
In the present case the respondent claims that there is a concluded contract between the parties and that the said contract contained a valid arbitration agreement
Looking at the substance of the matter the prayer was first in regard to the existence and the validity of the main contract leading upto the second and principal prayer that there was a valid arbitration agreement
Quite clearly the decision of this question cannot depend merely on the words used in the petition
Where the challenge to the contract made by the appellant in defence to the claim of the respondent is a challenge common to both the contract and the arbitration agreement the petition like the One made by the respondent must in substance be held to be a petition for a declaration as to the existence of a valid arbitration agreement and a suit to obtain such a declaration is clearly barred by section 32
Therefore in our opinion the fact that an incidental declaration is claimed about the existence and validity of the main contract does not affect the essential character of the application
It is an application for obtaining a declaration about the existence and validity of an arbitration agreement
It is true that an arbitration agreement included in the contract itself is in one sense an integral part of the contract and in another sense it may be distinct from it
As observed by Lord Macmillan in Hayman vs Darwins Ltd1 the arbitration clause is quite distinct from the other clauses
The other clauses set out the obligations which the parties undertake towards each other hinc inde but the arbitration clause does not impose on one of the parties an obligation in favour of the other
It embodies the agreement on both the parties that if any dispute arises with regard to 1 section C at p 347
781 the obligations which the one party has undertaken to the other such dispute shall be settled by a tribunal of their own constitution
Moreover there is this very material difference that whereas in any ordinary
contract the obligations of the parties to each other cannot in general be specifically enforced and breach of them results only in damages the arbitration clause can be specifically enforced by the machinery of the Arbitration Acts
It is therefore theoretically possible that a contract may come to an end and the arbitration agreement may not
It is also theoretically possible that the arbitration agreement may be void and yet the contract may be valid and in that sense there is a distinction between the arbitration agreement and the contract of which it forms a part but as we have already pointed out in the present case the challenge to the contract itself involves a challenge to the arbitration agreement if there is a concluded contract the arbitration agreement is valid
If there is not a concluded contract the arbitration agreement is invalid
In such a case a prayer for a declaration of the existence of the contract and its validity inevitably leads to the consequential prayer about the existence and validity of the arbitration agreement
If that is so a suit cannot lie for a declaration that the arbitration agreement is valid because the prayers that the respondent has made in the present case fall directly within the clause on any ground whatsoever
Indeed we apprehend that in a very largo majority of cases where the arbitration agreement is a part of the main contract itself challenge to the existence or validity of one would mean a challenge to the existence or validity of the other
We would accordingly hold though for different reasons that the High Court was right in coming to the conclusion that the petition made by the respondent was competent under section 32 of the Act and has been properly entertained by the trial Court
782 This question has been the subject matter of some judicial decisions to which reference may now be made
In Messrs M Grulamali Abdulhussain  Co vs Messrs Vishwambharlal Ruiya1 a petition had been filed for a declaration that the respondents had entered into the contract with the petitioners for purchase of 500 bars of silver on or about January 30 1948 according to the rules and regulations of the Marwari Chamber of Commerce Ltd and that the respondents were bound to have all disputes in connection with the same contract decided by the arbitrators as provided by the said rules and regulations
The competence of this petition and the jurisdiction of the Court to enter tain it were disputed
Both the learned trial judge and the Court of Appeal rejected the respondents  contention and held that there was an inherent jurisdiction in the Court to entertain petitions in respect of matters covered by the bar raised by 32
On the other hand in Bajranglal Laduram vs Agarwal Brothers2 as well as in State of Bombay vs Adamjee Hajee Dawood  Co a contrary view has been accepted
In the latter case a suit had been filed on the Original Side of the Calcutta High Court claiming a declaration that a certain contract was not made between the parties and was not binding on the plaintiff
A further claim was also made that it should be declared that the defendant was not entitled to make any claim in respect of the said contract and that the contract be adjudged void and delivered up as cancelled
The learned trial judge construed the plaint as one for declaration that the arbitration agreement contained in the contract was invalid and on that view he held that under sections 32 and 33 of the Act the suit was not maintainable
On appeal it was held that the suit was not one for challenging the validity of the arbitration agreement merely it 1 1 L R 2 A I R 3 1
L R 783 covered other reliefs and so bar of sections 32 and 33 could not be pleaded
We are inclined to think that the decision of the Bombay High Court is substantially correct
That takes us to the next question as to whether there was a concluded contract between the parties or not
We have already noticed that in response to the advertisement published by the respondent in the Indian Trade Journal the appellant submitted its tender
It is common ground that the tender thus submitted was subject to the conditions of contract governing the Department of Supply Contracts which were set out in the Government Publication Form W section B 133
Clauses 4a and b of these conditions are relevant
They deal with the security deposit
Clause 4a provides that on acceptance of the tender the contractor shall at the option of the Secretary Department of Supply and within the period specified by him deposit with him a security deposit therein specified
Clause 4 b provides that if the contractor is called upon by the purchaser to deposit security and the contractor fails to provide the security within the period such failure will constitute a breach of the contractor and the Secretary Department of Supply shall be entitled to make other arrangements at the risk and acceptance of the contractor
It is thus obvious that the tender offered by the appellant submitted to these terms and that on these terms security deposit is a condition subsequent and not a condition precedent
Clause 4b makes it clear that the failure to make the deposit would be a breach of the contract itself
This position is not disputed but Mr Din Dayal contends that this position has been substantially varied by the Form in which the appellant s tender was accepted by the respondent
His argument is that the material words used in the acceptance letter changed the preexisting position and made the security deposit a condition
precedent to the acceptance itself
If this contention is right it would necessarily mean 784 that there was no concluded contract
Thus the decision of this point depends upon the construction of the letter of acceptance issued by the respondent to the appellant after receiving its tender
In this letter written on August 31 1949 the respondent stated as follows Dear Sirs Ref  Your tender No and date Nil
Your offer is hereby accepted for a quantity of 1704 Cwts
and 2 qrs
One thousand seven hundred and four hundred weights and two quarters only of Oil Cocoanut conforming to specification No IM
1370 d at Rs 896 Rupees eighty nine and annas six only per Cwt
packed in non returnable sound strong 45 gallon drums delivery ex godown at Calcutta by 30 9 49 or earlier if possible subject to your depositing 10 as security
The security money which comes to Rs 15230 Rupees fifteen thousand two hundred and thirty only should please be deposited immediately into a Government Treasury in favour of the Deputy Accountant General I and section Akbar Road New Delhi and the Treasury Receipt forwarded to this office
This security money will be refunded to you after the completion of the contract
The contract is concluded by this acceptance and formal acceptance of Tender will follow immediately on receipt of Treasury Receipt
Kindly acknowledge receipt
Yours etc
 The whole argument is founded on the use of the clause  Subject to your depositing
10 as security
 Prima facie this clause may justify the argument that it is intended to make the security deposit a condition precedent but in construing the true 785 effect of this clause we must look at the whole of the letter bearing in mind the fact that it has been written not by a lawyer or in consultation with a lawyer but by a Government officer in the ordinary course of the discharge of his duties
The first sentence in the first paragraph clearly shows that the offer was accepted for the quantity therein specified
The second paragraph calls upon the appellant to see that the specified amount is deposited immediately into the Government Treassury
This paragraph is more consistent with clause 4a of the general conditions
It reads as if having accepted the tender the appellant is reminded that it has to deposit the amount under the relevant condition and the letter ends with the categorical statement that the contract is concluded by this acceptance
Mr Din Dayal is right when he contends that section 7 of the Contract Act requires that the acceptance of the offer must be absolute and unqualified it cannot be conditional but reading the letter as a whole we do not think that the Courts below have erred in Coming to the conclusion that this letter amounts to an absolute and unqualified acceptance of the tender or offer made by the appellant
While dealing with this question it may be pertinent to recall that the general conditions of the contract prescribed by Form WSB 133 are made a part of the tender and the contract itself was intended to be executed expeditiously
The tender shows that the appellant represented that the earliest date by which delivery could be effected would be within twenty days from the date of the receipt of the order and it also said that full quantity of cocoanut oil required was held by it
Therefore to begin with the tender treated the security deposit as a subsequent condition the contract was for the immediate supply of goods and the acceptance purports to be in accordance with the relevant government rules and uses the expression that the contract was concluded by the said acceptance
Therefore in our opinion reading the letter as a whole it would not be possible to 786 accept the appellant s argument that the letter was intended to make a substantial variation in the contract by making the deposit of security a condition precedent instead of a condition subsequent
In the result the appeal fails and is dismissed with costs
Appeal dismissed


Summary:
The appellant and the respondent nominated their arbitrator who heard the matter at length and the proceedings had reached a stage when an award might have been pronounced
It was then that the appellant chose to obstruct the further progress of the proceedings by raising the plea that there was no concluded contract
The appellant refused to apply under section 33 and so a stalemate issued because the arbi trators were not entitled to proceed further with the arbitration proceedings
 The respondent moved the court under section 28 along with section 33 for a decision of the question about the existence and validity of the arbitration agreement and also prayed that extension of time be granted to  the arbitrators for
making the award
The appellant pleaded in defence that  there was no concluded contract and there was no jurisdiction in the court to grant extension under section 28 of the Act
The High Court confirmed the finding of the trial court that there was a concluded contract which contained a valid arbitration agreement
As for jurisdiction it held that since the petition had been filed as composit application under sections 28 and 33 it was open to the court under section 28 to enter upon the question of the existence or validity of the contract and so there was no substance in the point of jurisdiction raised by the appellant
It is against this decision that the appellant came up by special leave
Section 33 of the Arbitration Act 1940 consists of two parts the first part deals with a challenge to the existence or validity
of an arbitration agreement or an award and it provides that only persons who challenge the existence of the arbitration agreement that can apply under the first part of the section
The second
part of the section refers to the application made to have the effect of either the arbitra 770 an application can be made to have the effect or purport of the agreement determined but not its existence
That means that an application to have the effect of the agreement can be made provided the existence of the agreement is not disputed
The question is whether a person affirming an arbitration agreement can apply under the latter part of section 33 about the existence of the agreement or its validity
Held that a party affirming the existence of an arbitration agreement cannot apply under section 33 for obtaining a decision that the agreement in question exists
An application to have the effect of the arbitration agreement determined can however legitimately cover the dispute as to the existence of the said arbitration agreement
Section 32 of the Act creates a bar against the institution of suits with regard to an arbitration agreement or award on any ground whatsoever
Thus if a party affirms the existence of an arbitration agreement or its validity it is not open to the party to file a suit for the purpose of obtaining a declaration about the existence of the said agreement or its validity
The bar to the suit thus created by section 32
inevitably raises the question as to what remedy is open to a party to adopt in order to obtain a appropriate declaration about the existence or validity of an arbitration agreement
Held that having regard to the scheme of sections 31 32 33 of the Act in matters which fall within the bar created by section 32 if a suit cannot be filed it is necessarily intended that an application can be made under the court s powers provided for by section 31 and impliedly recognised by section 32 of the Act
Held further that in holding that section 32 impliedly recogniscs the inherent jurisdiction of the court to entertain an application made by parties affirming the existence of an arbitration agreement the provisions of section 32 is brought it line with the provisions of sections 33 and 20 of the Act
Indeed section 33 is a corollary of section 32 and in a sense deals with the most usual type of cases arising in arbitration proceedings
A question arises whether an application ran be made under such inherent jurisdiction for declaration that the contract which includes the arbitration agreement includes cases where the arbitration agreement is made a part of the contract itself
Held that where the challenge to the contract made in defence to the claim is a challenge common to both the contract and the arbitration agreement the petition in substance is a petition for a declaration as to the existence of a valid arbitration agreement and a suit to obtain such a declaration is clearly barred by section 32
The fact that an incidental declaration is claimed about the existence and validity of the main contract does not affect the essential 771 character of the application
It is an application for obtaining a declaration about the existence and validity of an arbitration agreement
Held also that the powers to enlarge time for making the award which is the subject matter of section 28 does not include a power to entertain a petition for declaration that there was a concluded contract between the parties containing a valid arbitration agreement
Hayman vs Darwins
Ltd  referred to
Messrs M Gulamali Abdulhussain  Co vs Messrs Vishwambharlal Buiya ILR  approved
Bajranglal Laduram vs Agarwal Brothers AIR 1950 Cal
267 and State of Bombay vs Adamjeee Hajee Dawood  Co Ltd ILR 1 952  disapproved