Case: Union Of India Vs. Birla Cotton Spinning &amp; Weaving Mills Ltd

1. The Birla Cotton Spinning and Weaving Mills Ltd.-hereinafter called the Company-supplied to the Union of India goods of the value of Rs. 1,06,670.89 P. under a contract, dated January 30, 1956 and received Rs. 93, 727 as part payment of the price. The Union declined to pay the balance of Rs. 12,943.89 P. The Company then commenced Suit No. 386 of 1958 in the Court of the Senior Subordinate Judge, Delhi, against the Union of India for a decree for Rs. 10,625 and Rs. 2,762.50 P. as interest from October 12, 1956 till date of suit with interest pendente lite and costs of the Suit. The Company alleged that the Union had withheld payment of the balance of Rs. 12,943.89 P. on the plea that an amount of Rs. 10,625 was due to the Union under another contract between the parties for a bulk purchase order No. PBI/7028-705, dated December 16, 1949. The Company submitted that there was no such contract and the dispute raised in that behalf by the Union had been referred to the arbitration of the Officer on Special Duty, Directorate-General of Supplies and Disposals and Shri Ramniwas Agrawala but had since been adjourned sine die by the arbitrators.2. The Union by petition, dated May 19, 1959 applied under S. 34 of the Indian Arbitration Act for stay of the suit alleging that a dispute had arisen between the parties and there being an arbitration agreement which could be invoked under the circumstances and the Union being ready and willing to do all things necessary for the proper conduct of the arbitration under Cl. 21 contained in form No. WSB-133. The Company resisted the petition contending that there was no dispute concerning the contract which was covered by any valid submission or arbitration clause and which attracted the application of S. 34 of the Arbitration Act. The Subordinate Judge held that before S. 34 could be invoked the suit must raise dispute in respect of the matter agreed to be referred to arbitration and not independent of it and as no dispute was raised by the Union about its liability to pay the amount claimed by the Company arising under the contract and the only dispute which was sought to be raised was in respect of the liability of the Company under another contract, the suit could not be stayed. An appeal against the order refusing to stay the suit was dismissed in limine by the High Court of Punjab. With special leave, the Union has appealed to this Court.

Court's reasoning:
8. The principle of the decision of the House of Lords in Heyman v. Darwins Ltd.,1942 AC 356, on which reliance was placed on behalf of the Union has also no application. It was held in that case that when an arbitration clause in a contract provides without any qualification that any difference or dispute which may arise "in respect of" or "with regard to" or "under the contract" shall be referred to arbitration, and the parties are at one in asserting that they entered into a binding contract, the clause will apply even if the dispute involves an assertion by one party that circumstances have arisen, whether before or after the contract has been partly performed, which have the effect of discharging one or both parties from all subsequent liability under the contract, such as repudiation of the contract by one party accepted by the other, or frustration of thethe Unions is not seeking to go to arbitration on a dispute between the parties about a breach committed by one side or the other or whether circumstances have arisen which have discharged one or both parties from further performance. It is a case in which in substance there is no dispute between the parties "under", "in connection with", or even "with regard to" the contracts. The plea raised by the Union for stay of the suit was frivolous. It is somewhat surprising that the plea should have been raised and persisted in, and even after going to arbitration in the other case have been brought up to this Court involving large costs to the public exchequer.