KRISHNA K MUKHERJEE Vs. HARIPADA BHATTACHARJEE

JUDGEMENT

(1.) In this case the plaintiff alleges that by an agreement in writing dated 14 December 1940, executed by the plaintiff and the defendant, the defendant agreed to give the plaintiff the exclusive right to sell, wholesale or retail, certain toilet articles in the markets of Bengal, that the plaintiff agreed thereby to purchase from the defendant a minimum quantity of the goods, and that the defendant agreed to sell such goods on a sixty days credit basis, provided the bills of the defendant covering the delivery challans as accepted by the plaintiff were accepted and payments thereof on the due dates were guaranteed by the plaintiff's bankers who must be a scheduled bank of Bengal. The defendant agreed to pay the plaintiff a consolidated commission on goods sold, and the agreement was for a term of five years with an option to renew. Thereupon the plaintiff acted as sole distributor for a short period, and goods were supplied by the defendant, but on 3 January 1941 the defendant gave notice purporting to treat the agreement as cancelled. On 7 January, however, the defendant withdrew the cancellation, and it was agreed that the parties would continue to act in accordance with the agreement. Thereafter, further goods were supplied on the plaintiff's orders. But after 16 January the defendant refused to accept any further orders and supplied other dealers without the plaintiff's consent in breach of the agreement. On 3 February 1941, the defendant determined the agreement. Clause 15 of the agreement provides that any violation of the aforesaid terms and conditions will entitle either party to determine this agreement, and if there be any dispute the same will have to be referred to an arbitrator approved by both parties, and the award of the arbitrator will be finally binding on both.

(2.) The present application is on behalf of the defendant under Section 19, Arbitration Act, to restrain the plaintiff from proceeding with the suit and for an order appointing an arbitrator. In his affidavit, the defendant states that on 2l December, 1940, he sent the plaintiff three bills for acceptance and payment to be guaranteed by the plaintiff's bankers in accordance with the terms of the agreement. On 23 December 1940, he received a letter from the plaintiff saying that he was worried about money matters and would be able to clear his position with his bankers either on 23 or 26 December when the bank would reopen. On 27 December 1940, he received another letter from the plaintiff informing him that the bills could not be passed through the bank before 2 January, 1941. Consequently, on 3 January the defendant wrote to the plaintiff intimating that as he had failed to comply with the provisions of Clause (4) of the agreement, that is, the clause providing for the sixty days credit, etc., the agreement stood cancelled under the provisions of Clause (15). On 6 January the plaintiff wrote saying that he had no banking account but was arranging with the Bengal Central Bank to get his bills accepted. Thereafter, the defendant received a letter from the Bengal Central Bank Ltd., intimating that he was to present his bills and further orders were placed by the plaintiff which the defendant refused to deliver. On 18 January the plaintiff begged him to deliver certain goods as a special favour, and he did so on the understanding that they had nothing to do with the agreement dated 14 December 1940, which had already been cancelled, and he denied that the notice of cancellation was ever withdrawn. It has been contended on behalf of the plaintiff that as according to the defendant, the contract was no longer in existence, it follows that there was no arbitration clause in existence, and therefore the suit ought not to be stayed. The principles to be applied in such cases as this have been frequently stated both by the English and the Indian Courts. Thus, in India Electric Co. Ltd. v. General Electric Trading Co. ( 29) 16 AIR 1929 Bom. 242, the headnote is as follows: Where a contract contains an arbitration clause, and one of the parties seeks to avoid the contract, the dispute is referable to arbitration if the avoidance of the contract arises out of the terms of the contract itself. Where, however, a party seeks to avoid the contract for reasons dehors it, the arbitration clause cannot be resorted to as it, together with the other terms of the contract, is set aside. In other words, a party cannot rely on a term of the contract to repudiate it and still say the arbitration clause should not apply. If he relies on a contract he must rely on it for all purposes.

(3.) In his judgment Kemp J. having stated the position in the terms described in the headnote, referred to the case in Jureidini V/s. National British and Irish Millers Insurance Co. Ltd (1915) 1915 AC 499 as a case in which the contract was repudiated and with it the arbitration clause. In that case an insurance company repudiated the claim in toto on the ground of fraud, and it was held that the repudiation of the claim on a going to the root of the contract precluded the company from pleading the arbitration clause as a bar to an action to enforce the claim. But, in the later case in Stebbing V/s. Liverpool and London and Globe Insurance Co., Ltd (1917) 2 KB 433, the company relied on a term in the contract to avoid liability, and it was held that the dispute was referable to arbitration. This also was an insurance case in which the policy recited that the assured had made a proposal and declaration which were agreed to be the basis of the contract, and that they were conditions precedent to any liability on the part of the insurers. In the case of any false declaration all benefit under the policy was to be forfeited. The company alleged that the proposal and declaration were false, and it was held that the truth or untruth of the statements was a matter to be referred to arbitration. In that case Lord Reading C.J. said that the phrase "avoiding the policy" was loosely used, and that in truth the company relied upon a term of the policy which prevented the claimant recovering and if the company were seeking to avoid the contract in the true sense they would have to rely upon some matter outside the contract, such as a misrepresentation of some material fact inducing the contract of which the force and effect are not declared by the contract itself, and that in resisting the claim the company were not avoiding the policy but relying on its terms. Therefore, the question whether or not the statements were true was a question arising out of the policy.