INDIAN OIL CORPORATION Vs. DEVINDER CHAUDHARY

JUDGEMENT

(1.) THIS revision petition by the first defendant is against the order of the lower court dismissing his application for stay of the suit under S.34 of the Arbitration Act, 1940.

(2.) THE plaintiff had entered into three agreements with the first defendant, the Indian Oil Corporation, for transport of L.P.G. Cylinders from Jullundur to Bilaspur and also from Jullundur to Nangal. All these agreements are on identical terms. Clause 35 of the agreement contained a provision for arbitration of all disputes arising out of the contract to be referred to the Sole Arbitration of the Director, Marketing of the first defendant Corporation or some other officer of the Corporation who may be nominated by the Director. As per the terms of the agreement, the plaintiff had furnished bank-guarantee to the tune of Rs. 22,500/- in respect of each of the three contracts. THE second defendant is the Bank of India who had provided the bank-guarantee on behalf of the plaintiff. THE suit is for a permanent injunction to restrain the first defendant the Indian Oil Corporation from raising any demand against the second defendant-Bank in respect of the guarantee furnished by it. THEre is also a prayer restraining the second defendant Bank from releasing the amount covered by the guarantee in favour of the first defendant.

(3.) THE second defendant Bank is only a guarantor for the first defendant, with respect to the security to be furnished in terms of the agreement between the plaintiff and the first defendant. THE relief prayed for in the main is also against the first defendant by way of an injunction restraining the first defendant from raising any demand for release of the amount covered by the bank-guarantee in terms of the agreement between the parties. THE second defendant Bank, can, therefore, be treated only as a formal party in the suit for obtaining effective relief against the first defendant. THE court below was, therefore, wrong in its view that the suit cannot be stayed under S.34 of the Arbitration Act for the reason that the second respondent is not a party to the Arbitration agreement.