Case: The Printers (Mysore) Private Ltd Vs. Pothan Joseph

1. 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 excluded 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 under the provisions of Cls. 2 (d) and 1(d) 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. S. Ramachandra Rao. Thereafter on July 14, 1958, the respondent filed the present suit against the appellant.2. The appellant contended that the two contracts on which the respondents 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 S. 34 of the Indian Arbitration Act, 1940 (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.3. The learned trial Judge who heard the appellants application, however, exercised his discretion against it and refused to stay the proceedings in the respondents 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 Court, however, thought that the learned trial judge, in dealing with the appellants application "had 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 Art. 133(1) of the Constitution; on that view it was though 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.

Court's reasoning:
6. 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 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 respondents apprehension that it was in a position to dodge the respondents claim. However, the High Court was not impressed by the 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 appellants plea that recourse of 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.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. 1,500/- per mensem under paragraph 1 (a). Paragraph 1 (b) 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 1/10th share of it; it is on this clause that the respondents claim in the present proceedings is based. The terms on which the respondent had to remain in service of the appellant are specified in paragraph 2(a) 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 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.12. 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, contends 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 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 context 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 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 theis 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 per cent 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 respondents 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 clause 4 of the contract because he was aware that no monies were payable to the respondent under clause 1 (d).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 statements 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 accepted by both the parties before Mr. Behram Doctor.15. It also appears that for some years the accounts of the Deccan Herald had not been separately kept as they should have been according to the respondents 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 involved the decision of the question about the effect of the respondents conduct on his present claim. The appellant 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 respondents 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 respondents grievance is that the appellant adopted an unhelpful and non-co-operative 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 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 thought 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 appellants application under S. 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 art. 136, and so we can justly interfere with the concurrent exercise of the discretion, by the courts below only if we fell that the said exercise of discretion is patently and manifestly unreasonable, capricious or perverse and that it may defeat the ends of justice