Case: Jawaharlal, Burman Vs. Union Of India

The respondent, Union of India, filed a petition in the Court of the First Class Sub-Judge at Delhi against the appellant M/s- J. Burman and Co., through its proprietor Jawahar Lal Burman under Ss. 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 1/2 Cwt. of coconut 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-1/104524. This tender was by the respondent which concluded a contract between the parties. The respondents case was that the said contract was governed by general conditions of contract Form W.S.B. 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 proceedings had gone on for a considerable time before the arbitrators the appellant objected to their jurisdiction to de 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 S. 28 along with S. 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.2. 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 respondent 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 joint had been raised in the pleadings of the appellant that the Court had no jurisdiction to entertain the petition under S. 33 or S. 32 of the Act. In fact the trial Judge has observed that it was not shown to him how the 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 months time to the arbitrators to make their award.3. Thus decision was challenged of 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 S. 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 Ss. 28 and 33 it was open to the Court under S. 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 appellants 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 had jurisdiction to entertain the respondents 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 scope or room or making any reference to arbitration. The first of these two contentions has been seriously pressed before us.

Reasoning: It is significant that under S. 31(2) 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, S. 2(c) 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 S. 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 Ss. 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 bethere 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 S. 32.This position is not disputed. The bar to the suit thus created by S. 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 beforeother 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 S. 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 awardassuming that the requirement that an application can be made under the first part of S. 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 S. 33 refers to the existence or validity in terms and Ss. 31 and 32 also refer separately to the existence, effect orit seems to us that a party affirming the existence of an arbitration agreement cannot apply under S. 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 thisour opinion, having regard, to the scheme of Ss. 31, 32 and 33 it would not be unreasonable to hold that in matters which fall within the bar created by S. 32 if a suit cannot be filed it is necessarily intended that an application can be made and such an application can be made under the Courts powers provided for by S. 31 and impliedly recognised by S. 32.On this construction S. 33 cannot be treated as exhaustive, of all cases where applications can be made. The Legislature has provided for the said cases under S. 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 forgo the procedure prescribe by the said agreement and sue on the contract itself. We are satisfied that a fair construction of Ss. 31, 32 and 33 does not lead to such an anomalousreading Ss. 31, 32 and 33 together we do not think the Court is driven to the conclusion that there is a lacuna in theit 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 S. 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 S. 32 in line with the provisions of Ss. 33 and 20. Indeed, S. 33 is a corollary of S. 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 S. 28 cannot be held 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 S. 28 confers such athe 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 up to 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 S. 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 arbitrationis, 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 large 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 S. 32 of the Act and has been properly entertained by the trialare inclined to think that the decision of the Bombay High Court is substantiallyhave 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.S. B. 133. Clauses 4(a) and (b) of these conditions are relevant. They deal with the security deposit. Clause 4(a) 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 conement of this judgment, Nandgopal, the second respon-tractor 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 4(b) makes it clear that the failure to make the deposit would be a breach of the contractthis contention is right it would necessarily mean 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 itswhole argument is founded on the use of the clause "subject to your depositing 10 per cent 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 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 Treasury. This paragraph is more consistent with Cl. 4(a) 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 S. 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 W. S. B. 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 coconut 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 accept the appellants 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.