Appeal No 107 of 1960
Appeal by special leave from the judgment and order dated September 21 1959 of the Mysore High Court Bangalore in Misc
Appeal No 68 of 1959
Purshottam Prikamdas section N Andley J B DadaChanji Rameshwar Nath and P L Vohra for the appellant
715 K R Karanth and Naunit Lal for the respondent
April 27
The Judgment of the Court was delivered by GAJENDRAGADKAR J
The respondent Pothan Joseph who was working as the Editor of the Deccan Herald owned and published by the appellant The  Printers Mysore Private Ltd in Bangalore has filed a suit against the appellant on two contracts executed between the parties on April 1 1948 and February 20 1953 respectively and has claimed accounts of the working of the Deccan Herald newspaper from April 1 1948 to March 31 1958 as well as payment of the amount that may be found due to him from the appellant tinder the provisions of cls
2d and 1d of the said contracts
The services of the respondent were terminated by the appellant by its letter dated September 28 1957 in which the respondent was told that the termination would take effect from March 31 1958
However by a subsequent letter written by the appellant to the respondent on March 17 1958 the respondent was told that his services had been terminated with immediate effect and he was asked to hand over charge to his successor Mr T section Ramachandra Rao
Thereafter on July 14 1958 the respondent filed the present suit against the appellant
The appellant contended that the two contracts on which the respondent s claim was based were subject to an arbitration agreement and so it was not open to the respondent to file the present suit against the appellant
The appellant therefore requested the Court under section 34 of the Indian  hereinafter called the Act to stay the proceedings initiated by the respondent and refer the dispute to arbitration in accordance with the arbitration agreement between the parties
The learned trial judge who heard the appellant s application however exercised his discretion against it and refused to stay the proceedings in the respondent s suit
Thereupon the appellant preferred an appeal in the Mysore High Court but his appeal failed and the High Court confirmed the order passed by the trial court though for different reasons
The High 716 Court however thought that the learned trial judge in dealing with the appellant s application  bad gone much further than he should have done and hence it was desirable that the case should be tried by some other judge 
The respondent did not object and so the High Court directed that the suit may be transferred to the file of the Additional Civil Judge Bangalore
The appellant then applied to the High Court for a certificate
His application was however rejected on the ground that the decision under appeal could not be considered as a judgment decree or final order under article 1331 of the Constitution  on that view it was thought unnecessary to decide whether on the merits the case was fit to be taken in appeal to this Court
Then the appellant applied for and obtained special leave from this Court
That is how this appeal has come before us and the substantial point which arises for our decision is whether the courts below were in error in refusing to stay the suit filed by the respondent against the appellant in view of the arbitration agreement between them
Before we deal with the merits of the contentions raised by the parties in this appeal it is necessary to set out briefly the relevant facts leading to the present litigation
The appellant is a printing company and it owns and publishes the Deccan Herald in English and Prajavani in Kannada at Bangalore
By a contract dated April 1 1948 the appellant engaged the respondent as Editor of the Deccan Herald for a period of five years on terms and conditions specified in the said contract
As provided by el
5 of the said contract the period of the respondent s employment was extended by another five years by a subsequent contract entered into between the parties on February 20 1953
As we have already mentioned the services of the respondent came to be terminated abruptly on March 17 1958
It appears that by his letter dated October 16 1957 the respondent made certain claims against the appellant under the provisions of the Working Journalists Act
Besides he demanded 110th of the profits made by the Deccan Herald from 1948 up to the date of the termination of his service under the two respective contracts
This claim was 717 denied by the appellant
Correspondence then ensued between the parties but since no common ground was discovered between them the respondent filed the present suit
His case is that the two contracts entitled him to claim 110th of the profits made by the Deccan Herald during the period of his employment and so he claims an account of the said profits and his due share in them
The learned trial judge found that the respective contentions raised by the parties before him showed that there was no dispute as such between them which could attract the arbitration agreement
He also held that an attempt was made by the parties to settle their differences amicably through the mediation of Mr Behram Doctor but the said attempt failed because the appellant was not serious about it and was just trying  to protract defeat and delay the plaintiff s moves
According to the learned trial judge a plea of limitation would fall to be considered in the present suit and it was desirable that the said plea should be tried by a competent court rather than by arbitrators
He was however not impressed by the respondent s contention that his character had been impeached by the appellant and so he should be allowed to vindicate his character in a trial before a court rather than before the arbitrators
In dismissing the appellant s claim for stay of the suit the learned judge observed that if the accounts of the Deccan Herald had not been separately maintained it would be competent for a qualified accountant to allocate expenses and capital expenses among the different activities of the appellant and then very little would be left for arbitrators to decide
He had no doubt that the contract by which the respondent was entitled to claim 110th share in the profits of the Deccan Herald necessarily postulated that the accounts of the Deccan Herald would be separately maintained
On these considerations the trial judge refused to stay the suit
When the matter went in appeal the High Court held that the dispute between the parties did not fall within the arbitration agreement
The High Court also considered the other points decided by the trial court it held that Mr Behram Doctor had not been 93 718 appointed as an arbitrator between the parties and that the proceedings before him merely showed that the parties were exploring the possibility of having an arbitration
It observed that the appellant company was a big concern and referred to the respondent s apprehension that it was in a position to dodge the respondent s claim
However the High Court was not impressed by these apprehensions and it was not inclined to find fault with the conduct of the appellant in the trial court
It was also not satisfied that the question of limitation which would arise in the suit as well as the question of interpreting the contracts could not be properly tried by arbitration
It recognised that there had been a complete change of front on the part of the appellant in regard to the pleas raised by the appellant under the arbitration agreement when the matter was discussed before Mr Behram Doctor and when it reached the court in the form of the present suit
The High Court then considered other facts which it thought were relevant
It stated that there was great deal of bad blood between the parties and there was no meeting ground between them
The appellant s plea that recourse to arbitration may help an early disposal of the dispute did not appeal to the High Court as sound and so on the whole the High Court thought that the order passed by the trial court refusing to stay the proceedings in suit should be confirmed
The appellant contends that the reasons given by the High Court in refusing to stay the suit are not convincing and that the discretion vesting in the High Court in that behalf has not been properly or judiciously exercised
Section 34 of the Act confers power on the court to stay legal proceedings where there is an arbitration agreement subject to the conditions specified in the section
The conditions thus specified are satisfied in the present case but the section clearly contemplates that even though there is an arbitration agreement and the requisite conditions specified by it are satisfied the court may nevertheless refuse to grant stay if it is satisfied that there are sufficient reasons why the matter should not be referred in accordance with the arbitration agreement
In other words the power to 719 stay legal proceedings is discretionary and so a party to an arbitration agreement against whom legal proceedings have been commenced cannot by relying on the arbitration agreement claim the stay of legal proceedings instituted in a court as a matter of right
It is however clear that the discretion vested in the court must be properly and judicially exercised
Ordinarily where a dispute between the parties has by agreement between them to be referred to the decision of a domestic tribunal the court would direct the parties to go before the tribunal of their choice and stay the legal proceedings instituted before it by one of them
As in other matters of judicial discretion so in the case of the discretion conferred on the court by section 34 it would be difficult and it is indeed inexpedient to lay down any inflexible rules which should govern the exercise of the said discretion
No test can indeed be laid down the automatic application of which will help the solution of the problem of the exercise of judicial discretion
As was observed by Bowen L J in Gardner vs Jay 1  that discretion like other judicial discretion must be exercised according to common sense and according to justice
 In exercising its discretion under section 34 the court should not refuse to stay the legal proceedings merely because one of the parties to the arbitration agreement is unwilling to go before an arbitrator and in effect wants to resile from the said agreement nor can stay be refused merely on the ground that the relations between the parties to the dispute have been embittered or that the proceedings before the arbitrator may cause unnecessary delay as a result of the said relations
It may not always be reasonable or proper to refuse to stay legal proceedings merely because some questions of law would arise in resolving the dispute between the parties
On the other hand if fraud or dishonesty is alleged against a party it may be open to the party whose character is impeached to claim that it should be given an opportunity to vindicate its character in an open trial before the court rather than
before the domestic tribunal and in a proper case the
court may consider that fact as relevant for deciding 1 58 720 whether stay should be granted or not
If there has been a long delay in making an application for stay and the said delay may reasonably be attributed to the fact that the parties may have abandoned the arbitration agreement the court may consider the delay as a relevant fact in deciding whether stay should be granted or not
Similarly if complicated questions of law or constitutional issues arise in the decision of the dispute and the court is satisfied that it would be inexpedient to leave the decision of such complex issues to the arbitrator it may in a proper case refuse to grant stay on that ground indeed in such cases the arbitrator can and may state a special case for the opinion of the court under section 13b of the Act
Thus the question as to whether legal proceedings should be stayed under section 34 must always be decided by the court in a judicial manner having regard to the relevant facts and circumstances of each case
Where the discretion vested in the court under section 34 has been exercised by the trial court the appellate court should be slow to interfere with the exercise of the said 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 discretion under appeal solely on the ground that if it had considered the matter at the trial stage it would 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 and has adopted an unjudicial approach then it would certainly be open to the appellate court and in many cases it may be its duty to interfere with the trial court s exercise of discretion
In cases falling under this class the exercise of discretion by the trial 721 court is in law wrongful and improper and that would certainly justify and call for interference from the appellate court
These principles are well established but as has been observed by Viscount Simon L C in Charles Osenton  Co vs Johnston 1  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
In the present case there is one more fact which has to be borne in mind in dealing with the merits of the controversy before us
The appellant has come to this Court by special leave under article 136 in other words the appellant is not entitled to challenge the correctness of the decision of the High Court as a matter of right
It is only in the discretion of this Court that it can be permitted to dispute the correctness or the propriety of the decision of the High Court and so in deciding whether or not this Court should interfere with the order under appeal it would be relevant for us to take into account the fact that the remedy sought for by the appellant is by an appeal which is a discretionary matter so far as this Court is concerned
It is in the light of these principles that we must consider whether or not the appellant s complaint against the High Court s order can be upheld
The first point which calls for a decision relates to the construction of the contracts between the parties
As we have already stated two contracts were executed between them but their terms are substantially the same and so we may deal with the subsequent contract which was executed on February 20 1953 P 2
Under this contract the respondent was engaged as the Editor of the Deccan Herald and his salary was fixed at Rs 1500 permensem under paragraph 1 a
Paragraph 1b and c deal with the other amenities to which the respondent was entitled
Clause d of paragraph 1 provides that when the newspaper shows a profit in the annual accounts the Editor shall be entitled to 110th share of it is on this clause that the respondent s claim in the present proceedings is 1  138
722 based
The terms on which the respondent had to remain in the service of the appellant are specified in paragraph 2a and b
Paragraph 3 provides for the renewal of the contract for a further period of five years if it is found that such renewal is for the mutual advantage of the parties
This paragraph also provides that during the continuance of his employment the respondent shall not directly or indirectly be interested in any other newspaper business than that of the appellant or any other journalistic activities in competition with that of the appellant
It also stipulates that if the contract is determined the respondent shall not for a period of three years thereafter be directly or indirectly interested in any newspaper business of the same kind as is carried on by the appellant within the Mysore State
It would thus be seen that this paragraph shows the liability imposed on the respondent as a consideration for the benefit conferred on him by paragraph 1 in general and cl
d of the said paragraph in particular
Paragraph 4 contains an arbitration agreement
It provides that if in the interpretation or application of the contract any difference of opinion arises between the parties the same shall be referred to arbitration
The arbitrator can be named by both the parties but if they failed to choose the same person each side will choose an arbitrator and the two will elect another person to complete the panel
Their award shall be final and binding on both the parties
The High Court has held that the present suit is outside the arbitration agreement because neither party disputes the applicability of the terms of the contract in the decision of the dispute
The High Court thought that in the context the words application of the contract  meant a dispute as to the applicability of the contract and since the applicability of the contract was not in question and no dispute as to the interpretation of the contract arose the High Court held that paragraph 4 was inapplicable to the present suit
Mr Purshottam for the appellant con
tends that the construction placed by the High Court on the word  application  is erroneous
According to him any difference of opinion in regard to the application of the contract must in the context mean 723 the working out of the contract or giving effect to its terms
In our opinion this contention is well founded
The words interpretation or application of the contract  are frequently used in arbitration agreements and they generally cover disputes between the parties in regard to the construction of the relevant terms of the contract as well as their effect and unless the con  text compels a contrary construction a dispute in regard to the working of the contract would generally fall within the clause in question
It is not easy to appreciate what kind of dispute according to the High Court would have attracted paragraph 4 when it refers to a difference of opinion in the application of the contract
Since both the parties have signed the contract the question about its applicability in that form can hardly arise
Differences may however arise and in fact have arisen as to the manner in which the contract has to be worked out and given effect to and it is precisely such differences that are covered by the arbitration agreement
We would accordingly hold that the High Court was in error in coming to the conclusion that the present dispute between the parties was outside the scope of paragraph 4 of the contract
If the High Court had refused to stay the present proceedings only on this ground the appellant would no doubt have succeeded but the High Court has based its decision not only nor even mainly on the construction of the contract
The tenor of the judgment suggests that the High Court considered the other relevant facts to which its attention was invited and the material findings recorded by the trial judge and though it differed from some of the findings of the trial judge on the whole it felt no difficulty in coming to the conclusion that there was no reason to interfere with the trial court s exercise of discretion under section 34
That is why even though the appellant has succeeded before us on the question of the construction of the arbitration agreement having regard to the limits which we generally impose on the exercise of the jurisdiction under article 136 he must still satisfy us that we would be justified in interfering with the concurrent exercise of discretion by the two courts below and that would inevitably depend upon the other 724 relevant facts to which both the courts have referred and on which both of them have relied though in different ways
What then are the broad features of the case on which the trial judge and the High Court have respectively relied  It is clear that the present dispute is not the result of an ordinary commercial transaction containing an arbitration clause
The contract in question is between a journalist and his employer by which the remuneration of the journalist has been fixed in a somewhat unusual manner by giving him a specified percentage in the profit which the Deccan Herald would make from year to year
According to the respondent he was surprised when the General Manager of the paper informed him that 75 of the overall expenditure incurred in the several activities of the appellant was being charged to the Deccan Herald and that the capital liabilities were charged in the same proportion he thought that this system of accounting adopted by the appellant was repugnant to the material provisions in his contract
Indeed his case is that after he came to know about this system he protested to the Director Mr Venkataswamy who has been taking active part in the affairs of the appellant and Mr Venkataswamy assured him that as from the beginning of 1955 the accounts were being separately maintained
It would appear that the information received by the respondent from the General Manager disillusioned him and that appears to be the beginning of the present dispute according to the respondent s letter of May 24 1955 D 1
On February 18 1956 the respondent invoked the arbitration agreement and told Mr Venkataswamy that Mr Behram Doctor had agreed to work as arbitrator and give his award D 2
Mr Venkataswamy who was addressed by the respondent as the Managing Director told him by his reply of March 5 1956 that he was not the Managing Director and added that in his  view it was not open to the respondent to invoke cl 4 of the contract because he was aware that no monies were payable to the respondent under el 1d
It would thus be seen that Mr Venkataswamy s immediate response to the res pondent s request for arbitration was that the respon 725 dent could not invoke the arbitration clause D 3
It is true that on April 23 1956 Mr Venkataswamy attempted to explain this statement by saying that all that he intended to suggest was that no occasion for invoking the arbitration agreement had arisen
That however appears to be an unsatisfactory explanation D 10
Even so Mr Venkataswamy agreed to meet Mr Behram Doctor and so on March 9 1956 the respondent gave to Mr Venkataswamy the address of Mr Behram Doctor and asked him to see him D 5
He informed Mr Behram Doctor accordingly D 6
It appears that subsequently Mr Behrain Doctor met both the respondent and Mr Venkataswamy on May 9 1956
The proceedings of this meeting which have been kept by Mr Behram Doctor and copies of which have been supplied by him to both the parties indicate that Mr Behram Doctor attempted to mediate between the parties and presumably the parties were agreeable to secure the mediation of Mr Behram Doctor to resolve the dispute
We ought to add that the copy of the said proceedings produced by the appellant contains a statement that Mr Venkataswamy at the outset told Mr Behram Doctor that he had come on an unofficial visit and was speaking without the consent of the other directors
This statement is however not to be found in the copy supplied by Mr Behram Doctor to the respondent
Prima facie it is not easy to understand why Mr Behram Doctor should have omitted this material statement in the copy supplied by him to the respondent
That however is a matter which we do not propose to pursue in the present appeal
It is thus clear that though Mr Behram Doctor was not appointed an arbitrator and no reference in writing was made to him an attempt was made by the parties to settle the dispute with the assistance of Mr Behram Doctor and that attempt failed
Having regard to the facts which have come on the record it may not be unreasonable to infer that the appellant was not too keen to pursue the matter on the lines originally adopted by both the parties before Mr Behram Doctor
It also appears that for some years the accounts of the Deccan Herald had not been separately kept as 94 726 they should have been according to the respondent s case
The respondent alleges that they have not been kept separately throughout the ten years  but that is a matter which is yet to be investigated
If the accounts are not separately kept the question of allocating expenditure would inevitably arise and that can be decided after adopting some ad hoc principle in that behalf
A plea of limitation has also been indicated by the appellant and it has been suggested that the first contract having merged in the second it is only under the latter contract that the respondent may have a cause of action
Thus the effect of the two contracts considered together may have to be adjudged in dealing with the question of limitation
It has also been suggested that the respondent knew how the accounts were kept from year to year and in substance he may be deemed to have agreed with the method adopted in keeping the accounts
If this point is raised by the appellant it may involve the decision of the question about the effect of the respondent s conduct on his present claim
The appel lant has also suggested that the respondent has adopted an attitude of blackmailing the appellant and the respondent treats that as an aspersion on his character
The relations between the parties have been very much embittered and the respondent apprehends that the appellant being a powerful company may delay and seek to defeat the respondent s claim by protracting the proceedings before the arbitrators
It now looks impossible that the parties would agree to appoint one arbitrator and so if the matter goes before the domestic tribunal the two arbitrators appointed by the two parties respectively may have to nominate a third one to complete the constitution of the domestic tribunal and that it is said may easily lead to a deadlock
In the trial court attempts were made to settle this unfortunate dispute but they failed and the respondent s grievance is that the appellant adopted an unhelpful and noncooperative attitude
It appears fairly clear that when the parties entered into the present contract and agreed that differences between them in regard to the interpretation and application of the contract should be referred to 727 arbitration they did not anticipate the complications which have subsequently arisen
That is why an arbitration agreement may have been introduced in the contract in question
All these facts have been considered by both the courts and though it is true that in their approach and final decisions in respect of these facts the two courts have differed in material particulars they have in the result agreed with the conclusion that the discretion vested in them should be exercised in not granting stay as claimed by the appellant
Under these circumstances we do not think we would be justified in substituting our discretion for that of the courts below
It may be that if we were trying the appellant s application under section 34 we might have come to a different conclusion and also that we may have hesitated to confirm the order of the trial court if we had been dealing with the matter as a court of first appeal but the matter has now come to us under article 136 and so we can justly interfere with the concurrent exercise of the discretion by the courts below only if we feel that the said exercise of discretion is patently and manifestly unreasonable capricious or perverse and that it may defeat the ends of justice
Having regard to all the circumstances and facts of this case we are not disposed to hold that a case for our interference has been made out by the appellant
That is why we dismiss this appeal but make no order as to costs throughout
Appeal dismissed


Summary:
On October 10 1958 the Himachal Pradesh Abolition of Big Landed Estates and Land Reforms Act 1953 was declared invalid by the Supreme Court on the ground that the Legislative Assembly of the New Himachal Pradesh State which passed it was not duly constituted and was as such incompetent to pass the Act Vide Shree Vinod Kumar vs State of Himachal Pradesh 1959 SUPP
1 SCR 160
The President by Ordinance NO 7 of 1958 validated the constitution and proceedings of the said Assembly
That Ordinance was replaced by the Validating Act No 56 of 1958 passed by the Parliament
Section 3 of the Act validated the constitution and proceedings of the Legislative Assembly of the Himachal Pradesh State and section 4 prohibited the courts from questioning the validity of any Act or proceeding of the Assembly on the ground of defect in its constitution
The Himachal Pradesh Abolition of Big Landed Estates and Land Reforms Act was accordingly validated
The petitioners who were land holders challenged the constitutionality of the Ordinance and the validating Act by petitions under article 32 of the Constitution Held that i in view of article 24o as it stood before its amendment by the Constitution Seventh Amendment Act 1956 the Parliament was competent to enact the validating Act ii the provisions of the Abolition Act did not infringe articles 19 and 31 Of the Constitution and iiithe Abolition Act fell within the protection of article 31A of the Constitution and it was not open to challenge on the ground that it infringed articles 19 and 31 Of the Constitution
Shri Ram Narain vs State of Bombay 1959 Supp 1 SCR 489 referred to
The reason which precluded the members of the Old Himachal Pradesh Assembly from functioning as the Legislature of the New Himachal Pradesh State was that a Notification under section 74 of the Representation of the People Act 1951 Was not 756 issued
The Parliament by virtue of its residual powers of legislation under article 248 of the Constitution and item No 97 of List I to the Seventh Schedule was competent to remove the defect that arose because of the failure to issue the notification and to validate the actual proceedings of the body which functioned as the Legislature
Under article 240 Of the Constitution as it stood before it was amended by the Constitution Seventh Amendment Act 1956 the Parliament was not debarred from enacting the validating Act nor did the power of the Parliament to validate the acts and proceedings of the State Legislature come to an end when the State itself ceased to exist