ABRAHAM THOMAS Vs. DARRAGH SMAIL AND CO

JUDGEMENT

(1.) THE appellant in this Court is the 5th defendant and the respondent the plaintiff, the other defendants 1 to 4 not having been made parties to this appeal. Nor have they challenged the reversing judgment of the subordinate Judge in separate appeals.

(2.) THE plaintiff company engages in aerial spraying of insecticides of rubber plantations and defendants 1 to 5 are said to own a rubber estate 50 acres in extent. THE plaintiff undertook the spraying of the defendants' estate and claimed the charges agreed to be paid under the contract between the parties, evidenced by a requisition slip, Ext. P1. Since the 1st defendant, the father of the other defendants, went to the extent of even denying the agreement, the plaintiff took steps to put into operation the arbitration clause contained in Ext. P1. THE amount due was Rs. 3000/, but an advance had already been made of Rs. 750/-and thus the balance demanded by the plaintiff was Rs. 2250/ -. Clause. 10 of the terms and conditions of Ext. P1 provides that in case of any dispute, the matter shall be settled by arbitration under the indian Arbitration Act. Accordingly, the plaintiff-Company informed the 1st defendant that they were nominating one Kuncheria, Advocate, Alleppey, as the arbitrator but could not make headway because the 1st defendant denied the agreement altogether. Consequently, the plaintiff filed a suit for the amount due. THE 1st defendant remained ex parte; defendants 2 to 4 jointly contended, inter alia, that the rubber trees in their estate had become old and could not and did not benefit by any spraying etc. THE 5th defendant, however, admitted that the plaintiff-company had to be paid a balance of Rs. 2250/-for spraying the 50 acres of rubber estate but that he had also counter claims against the plaintiff towards commission, travelling expenses and other incidental charges connected with his work as commission agent of the plaintiff-company and that the suit claim should be adjusted towards what was due to him. He further contended that since Clause. 10 of Ext. P1 contained an arbitration clause, the suit was not maintainable without an earlier arbitral award. THE learned munsiff tried the suit, recorded the evidence, heard arguments but disposed of the suit on issue No. 1 upholding the 5th defendant's contention about the maintainability of the suit. He did not record findings on the other issues "in the light of the findings on issue No. 1" and dismissed the suit. An appeal was carried to the Subordinate Judge's Court. An opposite view was taken on the maintainability of the suit by the appellate Court which remanded the suit to the trial court for recording findings on the other issues. Although the entire evidence had been closed, the appellate Court directed that "the parties are at liberty to further plead and prove their cases on issues other than this after remand in the Court below". THE 5th defendant, in C. M. Appeal, has repeated his plea before me.

(3.) HOW then can we break through this ambiguity and reach some sort of certainty? The clue is given in Baron Alderson's observations in brown v. Overbury, excerpted by Lord Macmillan in the Privy Council case: "every contract must be determined according to the circumstances belonging to it. This is one of racing and the universal practice has been that in order to ascertain who is to have the stakes, it must first be determined who is the winner, not in the opinion of a jury, but of the persons appointed to decide it, viz. , the judge or the stewards. " In Cipriani v. Burnett (AIR. 1933 PC. 91) Lord Macmillan observed with regard to a horse racing dispute as follows: "their Lordships accordingly read the condition on the ticket, having regard to "the circumstances belonging to it, "as a condition precedent, the fulfilment of which is essential before any action for the stakes can be entertained by the Courts". Thus, if the circumstances belonging to the subject matter are such that one can import a Scott v. Avery implication to the arbitration clause, the need for arbitration can be transmuted into a condition precedent to the enforce ability of the contract in Court. The ruling reported in Prataprai Manmohandas v. Sheo Narayan Balal & Co. (AIR. 1956. Bom. 97)also lands itself to this interpretation. There, the Bombay Bullion Association limited framed bye-laws to regulate transactions in bullion and contracts were entered into, subject to those bye-laws. An amount of expertise and an intimate familiarity with the type of business is necessary in adjudication of disputes arising in that area of contracts. In this background, one might readily infer that the arbitration clause has a Scott v. Avery meaning, if I may say so. Gajendragadkar J. , as he then was, makes a few observations which are important from this angle: "it is common ground that both the parties were and are members of the Association and that bye-law 38 governs their dealings. This bye-law provides that "in connection with ready or forward transactions, between members of the company or between members and non-members, in gold, silver and sovereigns, done in accordance with the rules and bye-laws of the association, or whether a ready or forward transaction in gold, silver and sovereigns has been entered into or not, all the claims or disputes or differences of opinion of any sort arising out of the contracts in respect thereof shall be settled by reference to arbitration". "we have also held that if a contract has taken place between members of an association whose bye-laws or articles of association provide for an arbitration agreement, when the disputes must be resolved by the domestic tribunal contemplated by the bye-laws and articles of association and a suit in respect of them cannot be filed". Bullion transactions by way of ready or forward contracts are handled day in and day out, under the auspices of the Bombay Bullion association and disputes can be decided only if the judge possesses expertise in the line and parties must be deemed to imply an arbitral pre-requisite to enforcement of such contracts by way of suit. Moreover, commercial transactions of that nature must run smoothy and disputes ironed out by men in whose commercial ability and inregrity parties have great confidence. Instinctively, parties look up to arbitral solutions in such cases and not to civil courts. So universal is the practice that one may legitimately read a Scott v. Avery intent into an arbitration clause in all such cases. HOWever, a similar argument was pressed unsuccessfully before a Division Bench of the Kerala High court in a ruling reported in Govindji Jevat and Co. v. . M/s. Cannanore Spinning and Weaving Mills Ltd. (1968 KLJ. 635 ). There, the clause was very similar to the one in AIR. 1955 Bombay case. The subject matter was a cotton transaction and the East India Cotton Association Limited, Bombay and its bye-laws governed the contract. All that I have stated with regard to the Bombay Bullion association and bullion contracts might well apply, with equal force, to cotton contracts and the East India Cotton Association, Bombay. Raghavan J, speaking for the Court, repelled the argument that the arbitral bye-law there attracted the rule in Scott v. Avery and observed: "the most important aspect of this question now arises for consideration; and that is whether the suit has to be dismissed on the ground that the arbitration contemplated by bye-law 38 (A) had not been resorted to before the suit was filed. The Counsel argues that in the present case bye-law 38 (A) comes within the Scott v. Avery Group". Adverting to the decision in 1963 KLT. 415 his Lordship observed: 'in the case before our learned brother, there was a clause in the arbitration agreement that the due observance and fulfilment of the terms, conditions, etc. of the insurance policy in so far as they related to anything to be done or complied with by the insured, etc. , shall be condition precedent to any liability of the Insurance Company to make any payment under the policy. It was interpreting this clause that Mathew J. held that this was a Scott v. Avery clause; and that without complying with the provision for arbitration as a condition precedent, no suit lay. In the case before us, such a provision is absent in bye-law 38 (A ). Therefore, the decision of Mathew J. as such may not apply to the present case; and it is not necessary for us to consider further whether that decision is correct in so far as cases falling under the Indian Arbitration Act are concerned". The ruling reported in AIR 1956 Bombay 97 was distinguished, stating that there the bye-law was to the effect that only after obtaining an award from the arbitrators, a party could go to a court of law to obtain relief in respect of the transaction. HOWever, the learned judge agreed that Gajendragadkar J. had held that the jurisdiction of the Civil Court to entertain the suit would be barred and the domestic tribunal could alone deal with the dispute even if the bye-law was exactly similar in terms to the one before his Lordship Raghavan J. His Lordship proceeds to deal with this aspect and observes: "the counsel of the appellants, relying on the reasoning of Gajendragadkar J. , argues that the conclusion of the learned judge was not based on the latter part of the bye-law, but only on the earlier part, which is similar in terms to the bye-law before us. We reiterate that gajendragadkar J. has treated the earlier part of the bye-taw itself as a condition precedent, though the condition precedent clause was in the latter part of the bye-law before him. . What appears further from the reasoning of the learned judge is that he was inclined to accept the objection that such a condition precedent clause was bad in the case before him. " HOWever, taking the view that the Arbitration Act was exhaustive of the law relating to arbitration agreements, his Lordship held that "the remedy of parties to such an arbitration agreement lies within the act itself. Our attention has not been drawn to any provision in the Arbitration Act under which a suit can be dismissed for not resorting to the arbitration agreement. With due respect to Gajendragadkar J. , we find it difficult to agree with his decision; and we hold that the suit was maintainable. "