Case Law Companies Act SOCIETE DE TRACTION ET D’ELECTRICITE SOCIETE ANONYME Vs KAMANI ENGINEERING COMPANY LTD.

PETITIONER:
SOCIETE DE TRACTION ET D’ELECTRICITE SOCIETE ANONYME

Vs.

RESPONDENT:
KAMANI ENGINEERING COMPANY LTD.

DATE OF JUDGMENT:
18/04/1963

BENCH:
SHAH, J.C.
BENCH:
SHAH, J.C.
BHAGWATI, P.N. (CJ)
WANCHOO, K.N.
GUPTA, K.C. DAS
AYYANGAR, N. RAJAGOPALA

CITATION:
1964 AIR 558 1964 SCR (3) 116
ACT:
Arbitration–Agreement between company registered under
Indian Companies Act and a Foreign compny to refer dispute
to arbitration in accordance with the rules of International
Chamber of Commerce–Indian Company flies civil suit
disregarding the arbitrarion clause–Foreign Company
applies for stay of proceedings–Whether the agreement to
refer to arbitration though a machinery outside Indian Act
valid and enforceable–Companies Act, 1956 (I of 1956), ss.
389, 494 (b)–Arbitration Act 1940 (X of 1940) ss. 34, 46,
47–Arbitration (Protocol and Convention) Act, 1937 (VI of
1937), s. 3.

 

HEADNOTE:
The appellant is a corporation incorporated under the
laws of Belguim and carries on business in Brussels. The
respondent is a company registered under Indian Companies
Act, 1913. On April 22, 1959, the respondent entered into
an agreement with the appellant whereby the latter undertook
to provide to the former technical assistance for
construction works. The agreement contained an
arbitration clause by which the parties agreed to refer
“all disputes arising in connection with this agreement”
“under the Rules of Conciliation and Arbitration of the
International Chamber of Commerce.” In 1961 the respondent
instituted a suit on the Original Side of the High Court of
Bombay praying for various reliefs against the appellant.
There.upon the appellant took out a notice of motion for an
order staying the proceedings in the suit persuant to s. 3
of the Arbitration (Protocol and Convention) Act, 1937,
and/or under s. 34 of the. Arbitration Act, 1940, and/or
under s. 151 of the COde of Civil Procedure, 1908. The High
Court refused the motion one ground that the arbitration
clause of the agreement was invalid, for it obliged the
appellant, contrary to s. 3.89 of the Indian Companies
Act, 1956, to go to arbitration otherwise than in accordance
with the Arbitration Act X of 1940.. The present appeal is
by way of a certificate granted by the High Court.
117
In the appeal it was urged that s. 389 of the Companies
Act was an enabling provision and did not compel an Indian
Company to agree to refer differences to arbitration only in
accordance with the provisions of the Indian Arbitration
Act. If the company desired to refer a dispute to
arbitration under the Arbitration Act it might do so but the
power to submit to arbitration being an incident to the
power to enter into a contract for the purpose of carrying
on its business, was unrestricted and that sub-s. (3) of s.
389 applied not to consensual arbitration but only to
statutory arbitration in pursuance of the companies Act,
i.e. arbitration under s. 494 (b) of the Companies Act,
1956.
Held that s. 389 of the Indian Companies Act, 1956, is
intended to provide that all arbitration to which a company
is a party shall be conducted in accordance with the
provisions of the Indian Arbitration Act X of 1940. Section
389 (1) of the Companies Act, 1956, regulates the power of
the Indian Company to agree to submit disputes to
arbitration and by sub s. (3) of s. 389 the Arbitration Act
applies to all arbitrations to which an Indian Company is a
party.
But s. 47 of the Arbitration Act, 1940, is as much a
part of the Indian Arbitration Act as any other provision
and that section makes the provisions of the Arbitration
Act applicable to all arbitrations and to all proceedings
thereunder but subject to the provisions of s. 46 and in so
far as is otherwise provided by any law for the time being
in force. By the use of the words “save in so far as is
otherwise provided by any law for the time being in force
the Legislature has clearly made the provisions of the
Arbitration (Protocol and Convention) Act, 1937 applicable
to consensual arbitration under the Arbitration Act, 1940
when the conditions prescribed for application of that Act
are attracted, even if the scheme of arbitration recognized
thereby is inconsistent with ss. 3 to 38 of the Arbitration
Act, 1940. Arbitration according to the provisions of the
Arbitration (Protocol and Convention) Act, 1937 being
recognized by the Arbitration Act, 1940, an agreement to
refer disputes in accordance with the rules of the
International Chamber of Commerce is not inconsistent with
s. 389 of the Companies Act, 1956.
Societe Italians per Lavori Merittimi v. Hind
Constructions Ltd., Bombay High Court Appeal No. 63/59,
dated 22-9-60, Balmukand v. Punjab National Bank Ltd.Ambala
City, (1936) I.L.R. 17 Lah. 722 F.B., Jhirighat Native Tea
Company Ltd. v. Bipul chand Gupta, I.L.R. (1940) 1 Cal. 358,
East Bengal
118
Bank Ltd. v. Jogesh Chandra Banerji I.L.R. (1940)2 Gal. 237
and The Catholic Bank Ltd., Mangalore v. F.P.S. Albuquerque
I.L.R. (1944) Mad. 385 F.B.

 

JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 196 of
1963.
Appeal from the judgment and decree dated November,
15/16, 1962, of the Bombay High Court in Appeal No. 32 of
1962.
M.C. Setalvad, M.R. Parpia, J.P. Thacker, O.C.Mathur,
J.B. Dadachanji and Ravinder Narain, for the appellant.
S.T. Desai, Tanubhai D. Desai and I.N. Shroff, for the
respondent.
1963. April 18. The Judgment of the Court was delivered
by
SHAH J.–The question which fails to be determined in
this appeal with certificate granted by the High Court of
Bombay against an order refusing a motion for stay of a
suit, is:
“Whether an agreement to refer a future
dispute to arbitration according to the rules
of the International Chamber of Commerce
between a Company registered under the
Indian Companies Act and a foreigner is
binding upon the former.”
The facts which give rise to this question are these:
Societe De Traction Et D’Electricite Societe
Anonyme–hereinafter called, for the sake of brevity,
“Traction”–is a Corporation incorporated under the laws of
Belgium and carries on business as consulting and
construction engineers at Brussels. The respondent Kamani
Engineering Corporation Ltd–
119
hereinafter called ‘Kamani’–is a company registered under
the Indian Companies Act, 1913. Kamani carries on business,
amongst others, as an engineering concern. On April 22,
1959 Kamani entered into a ‘Colloboration agreement with
Traction whereby the latter undertook to provide to Kamani
technical assistance for the construction of overhead
railway electrification, tramway systems and trolley buses
in India, Burma, Ceylon and/or Nepal. The agreement
contained an arbitration clause in Articles X, which
provided:
“All disputes arising in connection with this
agreement during the period of the agreement
or thereafter shall be finally settled under
the Rules of Conciliation and Arbitration of
the International Chamber of Commerce by one
or more arbitrators appointed in accordance
with the Rules of the said International
Chamber of Commerce.”
On September 1, 1961, Kamani instituted suit No. 296 of
1961 in the High Court of Judicature at Bombay on its
original side, inter aria, for–
(1) a decree declaring that Traction
had committed diverse breaches of the
‘Collaboration agreement’ and the agreement
was on that account terminated by Traction,
and Kamani stood discharged from all its
obligations thereunder;
(2) a decree for accounts of the items
contained in the invoice referred to in
paragraphs 24 and 25 of the plaint and for
ascertainment of the amount in the light of
the contentions and submissions set out;
(3) for a decree directing Traction to
pay Its. 9,00,000/- together with
interest
120
thereon at the rate of six per cent per annum
from the date of the suit; and
(4) for the aforesaid purposes for an order
that all enquiries be made, directions
given, orders passed and Traction be
directed to hand over to Kamani all documents,
files, reports, correspondence etc., removed
by the representatives of the Traction.
On January 22, 1962 Traction took out a notice of
motion for an “order staying the proceedings in the suit
pursuant to s. 3 of the Arbitration (Protocol and
Convention) Act, 1937, and/or s. 34 of the Arbitration Act,
1940 and/or s. 151 of the Code of Civil Procedure, 1908
and/or the inherent powers of the High Court”; in the
alternative for an order that Kamani, its servants and
agents be restrained by an order and injunction from in any
manner proceeding further with or from taking any further
steps in the suit. Kantawalla, J. refused the motion and
the order passed by him was confirmed in appeal by the High
Court. The High Court held that the arbitration clause of
the collaboration agreement was invalid, for it obliged
Kamani, contrary to s. 389 of the Indian Companies Act,
1956, to go to arbitration otherwise than in accordance with
the Arbitration Act X of 1940.
The relevant rules of the International Chamber of
Commerce may be summarised. Article 7 provides by cl.(1)
that the Court of Arbitration does not itself settle
disputes except when otherwise stipulated: it appoints or
confirms the nomination of arbitrators in accordance with
the provisions following. If the parties have agreed to the
settlement of a dispute by a sole arbitrator they may
nominate him by common agreement for confirmation by the
Court of ArbitratiOn, failing agreement between the
121
parties the arbitrator shall be appointed by the Court of
Arbitration. If reference be to three arbitrators each
party shall nominate an arbitrator for confirmation of the
Court of Arbitration which shall appoint the third
arbitrator. If the parties fail to agree on the number of
arbitrators the Court of Arbitration shall appoint a sole
arbitrator who shall choose the National Committee or
Committees from which it shall request nominations. The
sole arbitrators and third arbitrators must be nationals of
countries other than those of the parties. If any challenge
be made by one of the parties to the appointment of an
arbitrator, the decision of the Court of Arbitration which
is the sole Judge of the grounds of challenge, shall be
final. On the death or refusal of an arbitrator to carry
out his duties, or on resignation, the Court. of
Arbitration if it appointed him, shall nominate another
arbitrator in his place. Article 8 deals with initiation of
arbitration proceedings. By Art. 13 it is provided that
when the parties agree to submit their disputes to
arbitration by the International Chamber of Commerce, they
shall be deemed to submit to arbitration in accordance with
the Rules and if a party raises a plea as to the existence
or validity of the arbitration clause, if the Court of
Arbitration is satisfied as to the prima facie existence of
such a clause, it may without prejudice to the admissibility
or the merits of such plea, order that the arbitration shall
proceed. Article 16 prescribes the procedure to be followed
in the arbitration proceeding. The rules by which the
arbitration proceedings shall be governed shall be the rules
of the Chamber and, in the event of there being no provision
in those Rules, those of the law of procedure chosen by the
parties or, failing such choice, those of the law of the
country in which the arbitrator holds the proceedings shall
govern the proceeding. By Art. 18 the proceedings before
the arbitrator are to take place in the country determined
by the Court of Arbitration, unless the parties
122
have agreed in advance upon the place of arbitration.
Article 19 deals with the arbitrator’s terms of
reference. The arbitrator is required, before hearing of
the case commences, to draw up in the presence of the
parties a statement .defining his terms of reference
including the names and addresses of the parties, brief
statement of the claims of the parties, terms of reference,
statement of the case, indication of the points at issue to
be determined, the place of arbitration proceeding, and all
other matters in order that the award when made shall be
enforceable at law, or which in the opinion of the Court of
Arbitration and the arbitrator, it is desirable to specify.
Article 9.0 deals with the hearing of. the case by the
arbitrator and Art. 21 specifies the powers of the
arbitrator. The arbitrator is competent to decide the
dispute on the basis of the relevant documents, unless one
of the parties requests that a hearing be given. The
arbitrator may suo motu, or on the request of the parties,
summon the parties to appear before him at a specified place
and time and if the parties or any of them having been duly
summoned, fail to appear before the arbitrator he may, after
satisfying himself that the summons was duly served upon the
party or parties, proceed with the arbitration ex parte.
Article 23 provides that the award shall be made within
sixty days from the date on which the signed statements
under Article 19 are submitted, but time may be extended by
the Court of Arbitration. Article 25 deals with the
decision regarding the costs of arbitration, arbitrator’s
fee and the administrative costs. By Article 26 the
arbitrator has before completing the award to submit the
same to the Court of Arbitration. The Court of Arbitration
may lay down modifications as to its form and if need be
draw the arbitrator’s attention even to points connected
with the merits of the case. and no award shall under any
circumstances be issued until approved as to its form by the
Court of Arbitration.. Articles 27 and 28 deal with the
123
pronouncement and notification of the award. By Art. 28 the
award is made final, it being undertaken by the parties that
the award shall be carried out without delay, the parties
having waived their right to any form of appeal, in so far
as such waiver may be valid. By Art. 30 the award is
required to be deposited with the Secretariat of the Court
of Arbitration. This is followed by a general rule which
states that in circumstances not specifically provided for,
the Court of Arbitration and the arbitrator shall act on
the basis of the rules and make their best efforts for the
award to be enforceable at law.
The scheme of arbitration contemplated by these Rules is
different from the scheme contemplated by ss. 3 to 38 of the
Arbitration Act. Some of the striking provisions of the
Rules are the power of the Court of Arbitration to appoint
arbitrators or umpires, finality of the award without any
provision for resort to the Civil Court to remit or to set
aside the award even for misconduct of the arbitrator or an
error apparent on the face of the award, and the power of
the Court of Arbitration to modify the award and to give
directions during the course of proceedings for arbitration,
and similar provisions.
Kamani is, as already stated, a company registered
under the Indian Companies Act of 1913 and by s. 3 (1) of
the Indian Companies, Act 1956,is a ‘Company’ for the
purposes of that act. Section 389 of the Indian Companies
Act, 1956 (before it’ was repealed by Act 65 of 1960) read
as follows :–
“(1) A company may, by written agreement
refer to arbitration, in accordance with the
Arbitration Act, 1940 (X of 1940), an existing
or future difference between itself and any
other company or person.
(‘2) A company which is a party to an
arbitration may delegate to the arbitrator
124
power to settle any terms or to determine any
matter, capable of being lawfully settled or
determined by the company itself, or by its
Board of Directors, managing director,
managing agent, secretaries and treasurers, or
manager.
(3) The provisions of the Arbitration Act,
1940 (X of 1940), shall apply to all
arbitrations m pursuance of this Act to which
a company is a party.”
The High Court held that an Indian Company could,
because of s. 389 refer an existing or future dispute
between itself and any other company or person to
arbitration only in accordance with the Arbitration Act,
1940 and not otherwise; that any arbitration agreement which
obliged the Company to submit itself to arbitration
according to a scheme of arbitration different from the
Arbitration Act, 1940 would not be binding upon the Indian
Company, and therefore the Court had no power to enforce
compliance with an invalid covenant, and to stay the suit
instituted by an Indian company in breach thereof. In
recording that conclusion the High Court was guided by its
earlier judgment in Societe Italians per Lavori Marittimi v.
Hind Constructions Ltd. (1), that it was not permissible to
a Company incorporated under the Indian Companies Act to
refer disputes to arbitration otherwise than in accordance
with the Arbitration Act.
In support of the appeal Mr. Setalvad contended that s.
389 is an enabling provision and does not compel an Indian
Company to agree to refer differences to arbitration only in
accordance with the provisions of the Indian Arbitration
Act, 1940 i.e. if the Company desires to refer a dispute to
arbitration under the Arbitration Act, 1940, it may do so,
but the power to submit to arbitration being an
(1) Appeal No. 63 of 1959 decided on September 22, 1960.
(Unreported.)
125
incident of the power to enter into contracts for the
purpose of carrying on its business, is unrestricted, and
that sub-s. (3) of s. 389 applies not to consensual
arbitrations but only to statutory arbitrations in parsuance
of the Companies Act, e.g. arbitrations under s. 494 (3) (b)
of the companies Act 1956.
It cannot be disputed that the use of the expression
‘may’ is not decisive. Having regard to the context, the
expression ‘may’ used in a statute has varying significance.
In some contexts it is purely permissive, in others, it may
confer a power and make it obligatory upon the person
invested with the, power to exercise it as laid down.
A company under the Indian Companies Act is entitled to
enter into contracts for all such purposes as are by its
constitution within its competence. It is invested with a
legal personality, and a commercial company may subject to
restrictions specifically imposed upon it by its memorandum
or Articles, always enter into contracts for the purpose of
its business subject in the matter of form to s. 46 of the
Companies Act. An arbitration agreement being a contract to
submit present or future differences between the parties
not to the ordinary courts but before a tribunal chosen by
the parties, if the company has the power to enter into a
contract,. that power would include power to submit a
dispute to arbitration out of court. By s. 28 of the Indian
Contract Act agreements in restraint of legal
proceedings are declared void, subject however to the rule
that a contract by which two or more persons agree that any
dispute which has arisen or which may arise between them in
respect of any subject or class of subjects shall be
referred to arbitration, is not illegal. Section 389 of the
Companies Act, 1956 therefore, does not confer any new right
upon Companies to agree to refer disputes which have arisen
or which may arise to arbitration: the
126
section recognises the rights of a company to refer
present disputes to arbitration, and seeks to regulate the
right by placing a restriction upon the exercise of that
right. It is pertinent to remember that the Arbitration
Act, 1940 is in form a code relating to the law of
arbitration and applies to all arbitrations: it applies to
all arbitrations to which persons natural and legal are
parties. The power of the Company to enter into an
arbitration agreement is therefore not conferred for the
first time by the Companies Act; it is merely regulated by
s. 389 of the Companies Act. In other .words, a company
within the meaning of the Indian Companies Act, 1956 has
the power to refer present or future disputes to
arbitration, but such reference has because of the statutory
provision to be in accordance with the Arbitration Act,
1940. Sub-section (3) of s. 389 makes the provisions of
the Arbitration Act,applicable to all arbitrations to
which a company is a party, provided they are in pursuance
of the Companies Act. There is no warrant for holding that
sub-s.(3) is independent of sub-s. (1). Subsection (1)
affirms the power of a company to refer differences between
it and another company or person, and also regulates it.
Sub-section (3) makes the provisions of the Arbitration Act
applicable to all arbitrations to which a company is a
party: it is not restricted to mere statutory arbitrations
to which a company is obliged to submit by virtue of the
provisions of the Companies Act. To invest sub-s. (3) with
a restricted meaning, is to make it redundant. The only
provision of the Companies Act which compels a company to go
to arbitration in respect of a dispute is s. 494 (3) (b).
By that clause a member of a transferor company in
voluntary liquidation expressing dissent against an
arrangement relating to the acceptance of shares, policies
or other interest or participation in profits in the
transferee company in consideration of the business of the
former may require the liquidator
127
to purchase his interest at a price to be determined by
agreement or by arbitration in the manner provided by s.
494, and sub-s. (6) expressly makes the provisions of the
Arbitration Act applicable to such arbitration. It may be
observed that the words “other than those restricting the
application of that Act” in sub-s. (6) have no meaning.
They have been merely copied from s. 208C of the Companies
Act of 1913, in which they survived by some inadvertance,
even after the repeal of the Arbitration Act of 1899. Our
attention has not been invited to any other provisions under
the Indian Companies Act under which compulsory arbitration
has to be undertaken between a company and another company
or person and in regard to which no provision relating to
the applicability of the Arbitration Act has expressly been
made. The provisions relating, to arbitration in the
earlier Companies Act also confirm that view. A
retrospect of legislation relating to arbitration in the
context of the law relating to Companies would serve also in
clearing the ground in appreciating the reasons which led to
conflicting decisions in the High Courts.
It may not be necessary to enter upon a detailed review
of the Regulations and Acts in force prior to the year 1882.
It may be sufficient to observe that in the Presidency
towns of Calcutta, Madras and Bombay there were diverse
Regulations in operation which provided for machinery for
amicable settlement of disputes of civil nature by
arbitration. For the first time by Act 8 of 1859 in the
Code of Civil Procedure a provision was made for reference
of disputes to arbitration by parties to the suit applying
to the Court in which the suit was pending in which the
matter was referred to arbitration. Then came the Indian
Contract Act 9 of 1879,, which recognized the validity of
contracts requiring parties to submit their disputes
either present or future to arbitration. In 1822 the Indian
128
Companies Act 6 of 1882 was enacted which by ss. 96 to 123
made provisions for arbitration out of Court, of disputes in
which companies were concerned. A company could refer by
writing under its common seal any matter whatsoever in
dispute between itself and any other company or person, and
the procedure prescribed in those sections applied. This
group of sections dealt exhaustively with arbitrations out
of court to which a company was a party. Beside enacting the
procedure for arbitration it provided that the award of the
arbitrator was not liable to be set aside on any ground of
irregularity or informality. On the application of any
party interested the arbitration agreement could be filed in
the High Court having jurisdiction, and an order of
reference could be made thereon. Immediately in the wake of
the Companies Act, 1882 the Code of Civil Procedure (Act 14
of 1882) was enacted which provided by Ch. XXXVII the
general law relating to arbitration.’ Sections 506 to 522
dealt with arbitration in a pending suit. If all the
parties to a suit desired that any matter in difference
between them in the suit be referred to arbitration, they
could, at any time before judgment was pronounced, apply to
the Court for an order of reference. By s. 523 provision
was made enabling the parties to an arbitration agreement to
file it in Court and the Court if satisfied as to the
existence of the arbitration agreement could make a
reference to the arbitrator appointed by the parties or
nominated by the Court and the provisions relating to
arbitration in the earlier sections in so far as they
related to or were consistent with the agreement applied.
Section 525 enabled any person interested in the award made
in a matter referred to arbitration without the
intervention of a Court of Justice to file the same in Court
and if no ground for setting aside the award was made out,
the Court could order that the same be filed. Chapter XXXVII
therefore dealt with arbitration generally–arbitration in
pending proceedings,
129
arbitrations pursuant to orders passed by the Court
referring a dispute on an agreement filed in Court, and
filing of awards made by arbitrators appointed by valid
agreements out of Court. The combined effect of the Indian
Companies Act ss. 96 to 123, and the Code of Civil
Procedure ss.506 to 526 was that where a Company was a party
to an arbitration out of Court, the arbitration proceedings
had to take place in accordance with the Companies Act and
could be enforced in the manner provided thereunder. Filing
of an arbitration agreement in Court for reference was also
governed by the Companies Act, but arbitration in a pending
suit to which a Company was a party was governed by the Code
of Civil Procedure.
In 1899 the Indian Legislature enacted the Indian-
Arbitration Act, 9 of 1899. That Act had a limited
operation. By s. 2 it was provided’ that it shall apply
only in cases where if the subjectmatter submitted to
arbitration were the subject of a suit, the suit could,
whether with leave or otherwise be instituted in a
Presidency-town. By the proviso it was open to the Local
Government, to declare the Act ‘applicable in other local
area as if it were a Presidency-town. By s. 3 proviso (2)
it was provided that’ nothing in the Act shall affect the
provisions of the Indian Companies Act, 1882 relating to
arbitration. The provisions of the Indian Companies Act,
1882 contained in ss. 96 to 123 therefore continued’ to
remain in operation and to apply to companies
notwithstanding the enactment of the Indian Arbitration Act,
1899. The Civil Procedure Code of 1882 was repealed by Act
5 of 1908 and the provisions relating to arbitration
substantially on the same pattern as in the Code of 1882
were incorporated in a separate schedule in the new Code.
Clauses 1 to 16 dealt with references to arbitration of the
differences between the parties to a suit if they-applied in
writing in that behalf.
131
Clauses 17 to 19 dealt with orders of references on
agreements to refer disputes to arbitration and clauses 20
and “1 dealt with the tiling and enforcement of awards.
Section 89 was specially enacted in the, Code which provided
by the first sub-section:
“(1) Save in so far as is otherwise provided
by the Indian Arbitration Act, 1899, or by any
other law for the time being in force, all
references to arbitration whether by an order
in a suit or otherwise, and all proceedings
thereunder, shall be governed by the
provisions contained in the Second Schedule.”
The effect of s. 89 was to make the Second Schedule
applicable to all arbitrations other than those governed by
the Indian Arbitration Act, 1899 or any other law for
the time being in force. Therefore since the enactment of’
the Code of Civil Procedure, 1908 all arbitrations out of
Court where a company was a party had to be conducted in the
manner provided by the Companies Act, 1882 but arbitrations
during the pendency of a suit or references to arbitrations
by filing an arbitration agreement could be made under the
appropriate clauses of the Code of Civil procedure. The
Indian Companies Act, 1882 was repealed by the Companies Act
7 of 1913. By s. 290 of that Act read with Schedule IV the
Indian Companies Act of 1882 and the second proviso to s. 3
of the Indian Arbitration Act, 1899 were, repealed. The
Indian Companies Act, 1913incorporated a new section 152
which by the first clause authorised a company by written
agreement to refer to arbitration, m accordance with the
Indian Arbitration Act, 1899, an existing or future
difference between itself and any other company or person,
and by the third subsection enacted that the provisions of
the Indian Arbitration Act, 1899, other than those.
restricting the application of the Act in respect of the
subject-matter of the arbitration, shall apply to all
arbitrations between companies and persons in pur-
131
suance of the Companies Act. The arbitrations to which a
company was a party had therefore tO take place irrespective
of the restrictions contained in s. 2 of the Arbitration
Act, 1899, according to the provisions of the Arbitration
Act, 1899. Section 214 of the Companies Act, 1913 (which
was later renumbered s. 208C by Act XXII of 1936)provided
for compulsory arbitration for purchasing the interest of a
member of a Company in voluntary liquidation when the
business of the company was agreed to be transferred to
another company in the course of liquidation and the
liquidator and the member could not agree as to the price
payable in respect thereof. By cl. (6) of that section it
was expressly provided that the provisions of the
Arbitration Act, 1899, other than those restricting the
application of that Act ‘in respect of the subject-matter of
the arbitration, shall apply to all arbitrations in
pursuance of s. 214.
The Government of India was a party to the Protocol on
Arbitration Clauses and the Convention on the Execution of
Foreign Arbitral Awards. To enforce the terms of the
Protocol, the Indian Legislature enacted the Arbitration
(Protocol and Convention) Act, 6 of 1937 for enforcement
of foreign awards on differences relating to matters
considered,., as commercial under the law in force in
British India in pursuance of an arbitration agreement to
which the Protocol set. forth in the First Schedule applied,
between persons who were subject to the .jurisdiction of the
powers notified by the Governor-General in that behalf as
parties to the Convention. By s. 3 of , that Act it was
provided that:
“Notwithstanding anything contained in the
Indian Arbitration Act, 1899, or in the Code
of Civil Procedure, 1908, if any party to a
submission made in pursuance of an agreement
to. which the Protocol set forth in the First
Schedule as modified by the reservation
subject to Which it was signed by India
applies, Or any
132
person claiming through or under him, commen-
ces any legal proceedings in any Court against
any other party to the submission or any
person claiming through or under him in
respect of any matter agreed to be referred,
any party to such legal proceedings may, at
any time after appearance and before filing a
written statement or taking any other steps in
the proceedings, apply to the Court to stay
the proceedings; and the Court, unless
satisfied that the agreement of arbitration
has become inoperative or cannot proceed, or
that there is not m fact any dispute between
the parties with regard to the matter agreed
to be referred, shall make an order staying
the proceedings.”
By this enactment an obligation in the conditions set out in
s. 3 was imposed upon the Court, unless it was satisfied
that the agreement of arbitration had become inoperative or
could not proceed, to direct that the suit filed in any
Court in India against any other party to the submission
shall be stayed. This provision applied to all
arbitration agreements whether a company was or was not a
party thereto.
This Act was followed by the Arbitration Act, X of
1940. The Act was enacted in the form of a complete code on
the law of arbitration in India. All consensual arbitrations
were governed by the Arbitration Act and by s. 46 the
provisions of the Act, except sub-s (1) of s. 6 and ss. 7,
12, 36 and 37 were made applicable to every arbitration
under any other enactment for the time being in force, as if
the arbitration were pursuant to an arbitration agreement,
and as if that other enactment were an arbitration
agreement, except in so far as the Act was consistent with
that other enactment or with any rules made thereunder. By
s. 47 it was provided that:
“Subject to the provisions of section 46, and
save in so far as is otherwise. provided by
any
133
law for the time being in force, the
provisions of this Act shall apply to all
arbitrations and to all proceedings
thereunder.
Provided that an arbitration award other-‘
wise obtained may with the consent of all
parties interested be taken into consideration
as a compromise or adjustment of a suit by any
Court before which the suit is pending.”
By s. 49 read with the Fourth’Schedule the figure “1899” in
s. 152(1.) & (3) in the Companies Act, 1913 was
substituted’by the figure “1940” and the words in sub-s. (3)
“other than those restricting the application of the Act in
respect of the subject-matter of the arbitration” were
deleted. So also s. 89 of the Code of Civil Procedure was
deleted. The effect of this amendment was to make the
Arbitration Act applicable to all arbitrations in pursuance
of the Companies Act, 1913 in which a company was a party.
No amendment, however, was made in the Arbitration (Protocol
and Convention) Act, 6 of 1937 and none such was necessary.
By virtue of the saving clause in s. 47 the provisions of
the Arbitration (Protocol and Convention) Act, 1937
continued to operate.
The Indian Companies Act, 7 of 1913 was repealed by
the Companies Act I of 1956 and s. 389 took the place of s.
152 of the former Act with a slight modification. Under
the Arbitration Act, 1899 read with the Companies Act,
1913, the power of a company to refer differences to
arbitration fell to be determined in certain cases which
arose, before the High Courts of Lahore, Calcutta and
Madras. In sita Ram Balmukand v. The Punjab National Bank
Ltd. Ambala City (1), there was a private arbitration in a
dispute between the Punjab National Bank Ltd. and a debtor
of the Bank and the arbitrator made his award in favour of
the Bank. This award was filed in the Court
(1) (1956) I. L. R., 17 Lah. 722 F. B
134
of the Senior Subordinate Judge, Ambala under Sch. I of
the Code of Civil Procedure, 1908 and a decree was
obtained in accordance with the provisions of that
Schedule. Execution was then taken out and property of the
debtor was attached. The debtor contended that the award and
the decree by the Court were invalid, because
arbitration .to which a company was a party had, in view of
the provisions of s. 152 of the Indian Companies Act, to
take place in accordance with the provisions of the
Arbitration Act, 1899 and the award could only be filed in
the Court of the District Judge and not in the Court of the
Senior Subordinate Judge and therefore the proceedings in
execution “were ultra vires”. The High Court held that s.
152 of the Indian Companies Act, 1913, enacted an enabling
provision and did not make it obligatory upon the parties
one of which was a company, to go to arbitration in
accordance with the requirements of the Indian Arbitration
Act, 1899. The provisions of s. 152 in the view of the
Court being permissive, the Company could apply to have an
award filed in Court under paragraph 21 (1) of Sch. II to
the Code of Civil Procedure and the decree passed by the
Senior Subordinate Judge was not a nullity as contended by
the debtor. Bhide, J, who delivered the judgment of the
Court observed that the general policy of the Legislature as
disclosed by s. 152 of the Indian Companies Act, 1913, was
not to make compliance in arbitration proceedings with
the provisions of the Indian Arbitration Act, 1899,
obligatory outside the Presidency-towns and that s. 152
being an enabling provision it merely conferred power on
companies to. refer disputes to arbitration under the Indian
Arbitration Act, 1899, by an agreement in writing when that
course was preferred. This view was not accepted by the
Calcutta High Court in Jhirighat Native Tea Company .Ltd.
v. Bipul Chandra Gupta (1). In that case the jurisdiction
of the District Court to entertain a petition
(1) I.L.R.(1940) 1 Cas.358
135
under paragraph-20 of Sch. II of the C:ode of Civil
Procedure for an order filing an award made out of court
where one of the parties to the dispute Was a company
registered under the Indian Companies Act, 1913, was
challenged. It was held by the High Court of Calcutta that
by virtue of the provisions of s. 152 sub-ss. (1) and (3)
of the Indian Companies Act, 1913, all arbitrations between
companies and persons had to take place in accordance with
the provisions of ss. 3 to 22 of the Indian Arbitration
Act, 1899, and for that purpose, s. 2 of the Indian
Arbitration Act restricting its local application was to be
treated as non-existent. The Court also opined that in view
of s. 89 of the Code of Civil Procedure, 1908, the Second
Schedule to the Code had no application to arbitration
between a .company and a person or to arbitrations under s.
208C: of the Companies Act, 1913. It was observed that the
words “in pursuance of this Act” (i. e. the Companies Act)
qualified the phrase “shall apply” and therefore the meaning
of s. 159, was that the provisions of the Indian Arbitration
Act, 1800, except s. 2 thereof shall apply to all
arbitrations between companies and persons by the force and
effect of the Companies Act itself.
In East Bengal Bank Ltd. v. Jogesh Chandra Banerji (1)
Mittar J. modified the second proposition which was somewhat
broadly stated. He held that even ‘where one party or both
the parties to a suit any companies registered under the
Indian Companies Act, arbitration proceedings pendentee lite
between them are governed by the second schedule to the I
Code of Civil Procedure, 1908, and not the provisions of s.
152 of the Companies Act, 1918. It was pointed out that the
Indian Arbitration Act, 1899, only .applied to arbitration
by agreement without intervention of the Court and the Act
had no application to arbitration relating to the subject-
matter of a pending suit by the force and effect of s.152
I.L.R. (1940) 2 Cal.237
136
of the Indian Companies Act. The view expressed in
Jhirighat Native Tea Company’s Case (1), was approved by
the Madras High Court in The Catholie Bank Ltd. Mangalore
v.F.P.S. Albuquerque (2). In that case the Court held that
after the enactment of.the Indian Companies Act, 1913 and
before the Indian Arbitration Act, 1940, came into force, a
company could submit difference. s to arbitration only under
the provisions of the Indian Arbitration Act, 1899. and
consequently Companies were (for the purpose of arbitration
out of court) not governed by Sch. II of the Gode of Civil
Procedure, All these cases arose under the Indian
Arbitration Act, 1899 read with the Indian Companies Act,
1913, and the question mooted was whether the Subordinate
Judge, who was approached on the assumption that Sch. II of
the Code of Civil Procedure applied, was competent to pass a
decree on an award made out of court, or to entertain a
petition for filing such an award.
In 1960 the Bombay High Court had occasion to consider
the effect of s. 152 of the Indian Companies Act 7 of 1913,
in its relation to the Arbitration – Act of 1940. The
Court in that case after referring to the Lahore, the
Calcutta and the Madras decisions observed in Societe
Italian,s per Lavori Marittimi v. Hind Constructions Ltd.
(3), decided by Mudholkar acting C.J. and S. M. Shah, J,
after referring to the marginal note of s. 152:
“Undoubtedly a corporation has powers which
are incidental to the performance of the
objects for which that corporation was
established. It can, therefore, be said and
properly be said that a .power to carry on
business implies also an incidental power to
refer a dispute arising from that business to
arbitration. It was, therefore, not at all
necessary to make specific provisions in the
Indian Companies Act of
(1) I.L.R. (1940) 1 Cal. 358, (2) I.L.R (1944) Mad. 335 F
B
(3) Appeal No, 63 of 1959 decided on September 22, 1960,
137
the kind which we find in section 159. of the
Act of 1913 for enabling a corporation to
enter into an agreement for arbitration. The
fact that the legislature has enacted this
provision would show that the legislature by
enacting it had no object in view other than
to limit the exercise of that power.”
The Court therefore held that an arbitration agreement
whereby an Indian Company had agreed to refer future dispute
under a collaboration agreement with an Italian Corporation,
was unenforceable by virtue of s. 152 of the Indian
Companies Act, and the suit filed by the Indian company for
a declaration that the “dredging agreement” had been validly
terminated, and for damages for breach of contract, and
accounts of profits and tosses could not be ordered to be
stayed either under. s. 34 of Arbitration Act or s. 3 of
the Arbitration (Protocol and Convention) Act, 1937, or
under s. 151 of the Code of Civil Procedure.
On a review of the statutory provisions and the
authorities we are of the view that s. 152 of the Indian
Companies Act, 1913, and s. 389of the Indian Companies
Act, I of 1956, were intended to provide that all
arbitrations to which a company is a party shall be
conducted in accordance with the provisions of the Indian
Arbitration Act, X of 1940. For reasons which we have
already stated s. 389 (1) of the Companies Act, 1956,
regulated the power of Indian Companies to agree to
submit differences to arbitration and by sub-s. (3) the
provisions of the Arbitration Act, 1940, applied to all
arbitrations to which an Indian Company was a party.
That however is not decisive of the question which falls
to be determined before us. Section 47 of the Arbitration
Act, 1940, is as much a part of the Indian Arbitration Act
as any other provision
138
and that section makes the provisions of the Arbitration
Act applicable to all arbitrations and to all proceedings
thereunder but subject to the provisions of s. 46 and
save in so far as is otherwise provided by any law for the
time being in force. We arc not concerned in the present
case with a statutory arbitration. But by the use of the
words “save in so far as is otherwise provided by any law
for the time being in force”, the Legislature has clearly
made the provisions of the Arbitration (Protocol and
Convention) Act, 1937, applicable to consensual
arbitrations under the Arbitration Act of 1940 when the
conditions prescribed for the application of that Act are
attracted, even if the scheme of arbitration recognised
thereby is inconsistent with ss. 3 to 38 of the Arbitration
Act, 1940. The Arbitration (Protocol and Convention) Act 6
of 1937 was enacted for giving effect to the protocol on
arbitration clauses set forth in the First Schedule and of
the conventions on the execution of foreign arbitral awards
set forth in the Second Schedule and for enabling the
conventions to become operative in India. It is not disputed
that the proposed arbitration between Traction and Kamani
under the Rules of the International Chamber of Commerce is
governed by the Protocol on Arbitration Clauses agreed to at
Geneva. on September 24-, 1923, and the Protocol in the
First Schedule applies. The Arbitration (Protocol and
Convention) Act 6 of 1937, being a law otherwise providing
for arbitration the provisions thereof would by virtue of s.
47 be applicable to arbitrations under s. 389 of the
Indian Companies Act, 1956, if the conditions regarding
their applicability are fulfilled. That Act applies to
arbitrations whether parties to .the submission arc
individuals or companies. By virtue of s. 389 sub-ss. (1)
and (3) of the Indian Companies Act 1 of 1956, (before that
section was repealed in 1960) an Indian Company may
agree to refer differences between itself and any other
company or person by written
139
agreement in accordance with the Arbitration Act, 1940
and the provisions of the Arbitration Act, 1940 apply
to all Arbitrations in pursuance of the Companies Act to
which a company is a party. Arbitration according to the
provisions of the Arbitration (Protocol and Convention)Act
6 of 1937 being recognised by the Arbitration Act an
agreement to refer disputes in accordance with the rules of
the International Chamber of Commerce is not inconsistent
with s. 389 of the Companies Act, 1956. In Societe Italians
per Lavori Marittimi’s case (1), the attention of the
Court was, it appears, not invited to the provisions of s.
47 of the Arbitration Act, 1940, in its relation to the
Arbitration (Protocol and Convention) Act 6 of 1937 and the
Court refused to stay the action commenced in
contravention of the arbitration agreement on the footing
that an arbitration agreement which contemplated
reference otherwise than in the manner provided by the
Arbitration Act, 1940, ss. 1 to 38 was inffective not
being permissible under the provisions of s. 152 of the
Companies Act 1913 and “therefore impossible and completely
prohibited.” This view in our judgment, cannot be
sustained. In the present case, Kantawala, J. and the High
Court proceeded upon the view’ (as they were bound to do)
that the decision in Societe Italian per Lavori Marittimi’s
case (1) was sufficient to justify the contention of Kamani
that the suit could not be stayed, the arbitration
agreement being inffective and invalid. For reasons
already set out by us, that assumption cannot be supported
Whether having regard to the terms of s. 3 of the
Arbitration (Protocol and Convention) Act 6 of 1937 stay
may be granted of the suit commenced by Kamani is a
question on which no decision has been recorded by the
Trial Judge nor by the High Court, and we will not be
justified in this appeal in entering upon questions of fact
for the first time without having the
(1) Appeal No. 63 of 1959 decided on September 22, 1960.
140
benefit of the view of the High Court on those questions.
The appeal will therefore be allowed, and the proceeding
remanded to the Court of First Instance to be heard and
disposed of according to law. Costs in this Court and before
the Division Bench of the High Court will abide the result
of the proceeding taken pursuant to this order in the Trial
Court.
Appeal allowed.
Case remanded.

 

 

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