Case: Uttar Pradesh Co-Operative Federation Ltd Vs. M/S Sunder Brothers Of Delhi

2. The Uttar Pradesh Co-operative Federation Limited (hereinafter referred to as the Society) was registered under the Co-operative 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 M/s. 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 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 Arbitration Act, 1940 before the Subordinate Judge, Delhi, for an order for staying the suit. It was claimed by the Society that the suit was not maintainable because under S. 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 Cooperative 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 plaintiffs under S. 34 of the Indian Arbitration Act 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.

Reasoning:
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 Arbitration Act and therefore it was a fit case in which discretion of the court under S. 34 of the Indian Arbitration Act should be exercised in not staying the proceedings of the suit. In our opinion, the reasoning of the High Court has much substance6. There is also another reason why there should not be a stay of the proceedings under S. 34 of the Indian Arbitration Act. 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 arbitrationThe legal position is that an order of stay of suit under S. 34 of the Indian Arbitration Act 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 BristolCorporation v. John Aird and Co., 1913 AC241. This case was concerned with an application for stay of proceedings under S. 4 of the English Arbitration Act which is similar to S. 34 of the Indian Arbitration Act. 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 Court of appeal, that the fact that the engineer, with out 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 contractIt is manifest that the strict principle of sanctity of contract is subject to the discretion of the Court under S. 34 of the Indian Arbitration Act, 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, Cooperative Societies has approved the termination of the contract of Managing Agency with the plaintiff and the Registrar was the chairman of the defendant-Society. We are accordingly of the opinion that the High Court properly exercised its discretion under S. 34 of the Indian Arbitration Act in not granting a stay of the proceedings in the suit8. It is well established that where the discretion vested in the Court under S. 34 of the Indian Arbitration Act 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 courts 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 to interfere with the trial courts exercise of discretion5. If the arbitration agreement is not to be treated as a statutory arbitration under S. 46 of the Arbitration Act but an arbitration agreement under S. 47 of the Act, then the procedure to be followed for the arbitration under that agreement will be that provided under theCooperative Societies Act andthe Rules framed thereunder. Under S. 47 of the Indian Arbitration Act the arbitration will be governed only by such rules of theCooperative Societies Act andrules framed thereunder as are not inconsistent with the provisions of the Indian Arbitration Act. In this connection it is necessary to refer to Rules 115, 116 and 117 of theCooperative SocietiesRules framed under S. 43 of theCooperative SocietiesAct. 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 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 authorize him to give an award or appoint one or more arbitrators to proceed with the reference or he may decide the case himself"