Case: Societe De Traction Et D Vs. Kamani Engineering Company Ltd

Socite De Traction Et D Electricite Societe Anonyme - hereinafter called, for the sake of brevity, Traction - is a Corporation incorporated under the laws of Belgium and carries on business as consulting and construction engineers at Brussels. The respondent Kamani Engineering Corporation Ltd. - herein-after called Kamani - is a company registered under the Indian Companies Act, 1913. Kamani carries on business, amongst others, as an engineering concern. On April 22, 1959 Kamani entered into a Collaboration agreement with Traction whereby the latter undertook to provide to Kamani technical assistance for the construction of overhead railway electrification, tramway systems and trolley buses in India, Burma, Ceylon and /or Nepal. The agreement contained an arbitration clause in Article X, which provideddisputes arising in connection with this agreement during the period of the agreement or thereafter shall be finally settled under the Rules of Conciliation and Arbitration of the International Chamber of Commerce by one or more arbitrators appointed in accordance with the Rules of the said International Chamber of Commerce".On September 1, 1961 Kamani instituted suit No. 296 of 1961 in the High Court of Judicature at Bombay on its original side, inter aliaa decree declaring that Traction had committed diverse breaches of the Collaboration agreement and the agreement was on that account terminated by Traction, and Kamani stood discharged from all its obligations thereunder(2) a decree for accounts of the items contained in the invoice referred to in paragraph 24 and 25 of the plaint and for ascertainment of the amount in the light of the contentions and submissions set out.(3) for decree directing Traction to pay Rs. 9,00,000/- together with interest thereon at the rate of six per cent per annum from the date of the suit; and(4) for the aforesaid purposes for an order that all enquiries be made, directions given, orders passed and Traction be directed to hand over to Kamani all documents, files, reports, correspondence etc., removed by the representatives of theJanuary 22, 1962 Traction took out a notice of motion for an "order staying the proceedings in the suit pursuant to S. 3 ofthe Arbitration (Protocol and Convention) Act, 1937, and /or S. 34 ofthe Arbitration Act, 1940 and /or S. 151 of theCode of Civil Procedure, 1908 and /or the inherent powers of the High Court"; in the alternative for an order that Kamani, its servants and agents be restrained by an order and injunction from in any manner proceeding further with or from taking any further steps in the suit. Kantawalla, J., refused the motion and the order passed by him was confirmed in appeal by the High Court. The High Court held that the arbitration clause of the collaboration agreement was invalid, for it obliged Kamani, contrary to S. 389 of the Indian Companies Act, 1956, to go to arbitration otherwise than in accordance with the Arbitration Act X of 1940.

Court's reasoning:
9. It cannot be disputed that the use of the expression may is not decisive. Having regard to the context, the expression may used in a statute has varying significance. In some contexts it is purely permissive, in others, it may confer a power and make it obligatory upon the person invested with the power to exercise it as laid down.That however is not decisive of the question which falls to be determined before us. Section 47 ofthe Arbitration Act, 1940, is as much a part of the Indian Arbitration Act as any other provision and that section makes the provisions of the Arbitration Act applicable to all arbitrations and to all proceedings thereunder but subject to the provisions of S. 46 and save in so far as is otherwise provided by any law for the time being in force. We are not concerned in the present case with a statutory arbitration. But by the use of the words "save in so far as is otherwise provided by any law for the time being in force", the Legislature has clearly made the provisions ofthe Arbitration (Protocol and Convention) Act, 1937, applicable to consensual arbitrations under the Arbitration Act of 1940 when the conditions prescribed for the application of that Act are attracted, even if the scheme of arbitration recognised thereby is inconsistent with Ss. 3 to 38 ofthe Arbitration Act, 1940.The Arbitration (Protocol and Convention) Act 6 of 1937 was enacted for giving effect to the protocol on arbitration clauses set forth in the First Schedule and of the conventions on the execution of foreign arbitral awards set forth in the Second Schedule and for enabling the conventions to become operative inis not disputed that the proposed arbitration between Traction and Kamani under the Rules of the International Chamber of Commerce is governed by the Protocol on Arbitration Clauses agreed to at Geneva on September 24, 1923, and the protocol in the First Schedule applies. The Arbitration (Protocol and Convention) Act 6 of 1937, being a law otherwise providing for arbitration the provisions thereof would by virtue of S. 47 be applicable to arbitrations under S. 389 of the Indian Companies Act, 1956, if the conditions regarding their applicability are fulfilled. That Act applies to arbitrations whether parties to the submission are individuals or companies. By virtue of S. 389, sub-secs. (1) and (3) of the Indian Companies Act I of 1956, (before that section was repealed in 1960) an Indian Company may agree to refer differences between itself and any other company or person by written agreement in accordance withthe Arbitration Act, 1940 and the provisions ofthe Arbitration Act, 1940 apply to all arbitrations in pursuance of the Companies Act to which a company is a party. Arbitration according to the provisions of the Arbitration (Protocol and Convention) Act 6 of 1937 being recognised by the Arbitration Act an agreement to refer disputes in accordance with the rules of the International Chamber of Commerce is not inconsistent with S. 389 ofthe Companies Act, 1956. In Societe Italians per Lavori Marittimis case, Appeal No. 63 of 1959 D/- 22-9-1960 (Bom) the attention of the Court was, it appears, not invited to the provisions of S. 47 ofthe Arbitration Act, 1940, in its relation to the Arbitration (Protocol and Convention) Act 6 of 1937 andthe Court refused to stay the action commenced in contravention of the arbitration agreement on the footing that an arbitration agreement which contemplated reference otherwise than in the manner provided bythe Arbitration Act, 1940,Ss. 1 to 38 was ineffective not being permissible under the provisions of S. 152 of the Companies Act 1913 and "therefore impossible and completely prohibited". This view in our judgment, cannot be sustained. In the present case, Kantawalla, J., and the High Court proceeded upon the view (as they were bound to do) that the decision in Societe Italian per Lavori Marittimis case, Appeal No. 63 of 1959 D/- 22-9-1960 (Bom) was sufficient to justify the contention of Kamani that the suit could not be stayed, the arbitration agreement being ineffective and invalid. For reasons already set out by us, that assumption cannot be supported. Whether having regard to the terms of S. 3 of the Arbitration (Protocol and Convention) Act 6 of 1937 stay may be granted of the suit commenced by Kamani is a question on which no decision has been recorded by the Trial Judge nor the High Court, and we will not be justified in this appeal in entering upon questions of fact for the first time without having the benefit of the view of the High Court on those questions.