TMI Blog1977 (8) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... ter's degree from the Cambridge University and is also said to be a widely travelled lady and a good mixer with the several Managing Directors and their wives of several companies in Calcutta and who now is said to be in the educational service of the State of West Bengal. There is another person whose name has to be mentioned and he is one Hoshang Shapwji Cawasji Mehta. He is said to be residing at No. 20, Park Street, Calcutta. He claims that he belongs to the Masonic Lodge and was a Grand Master and that he and Mr. Fordwood who was the Managing Director of M/s. Jardine Handerson Ltd. were both fellow masons belonging to the same Lodge. He protests that he loves Sm. Sudershana Chakraborty 83 his own daughter since his own daughter residing in England. It is necessary to set out the aforesaid background in order to understand the controversy in this case in the application under Section 34 of the Arbitration Act, 1940 for stay of the suit No. 562 of 1976. 2. It appears that the said Mukul Chakraborty was a whole time employee of Jardine Handerson Ltd. and was entrusted to look after and supervise the business of rendering advisory and technical services to various other com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existing clients of Jardine Handerson Ltd. to whom the said company rendered the advisory and technical services from time to time and enquire from them about the various difficulties that they might experience in connection with the services that they obtained from the company with regard to the said technical and advisory services. It was further stipulated that the agent, after making such enquiries, would forthwith inform Jardine Handerson Ltd. about the difficulties, felt by the clients of the said company and assist the said company to do all the needful to remove such difficulties. The agreement further stipulated that it would be the responsibility of the agent to prospect new clients for rendering the said advisory and technical services by the company. The rate of commission payable to the agent for doing the aforesaid work was also provided in the said agreement. It is not necessary to refer to the said terms of agreement. It was stipulated that if the agreement should continue automatically without amendment beyond 31st March, 1972, then the commission payable by the company to the agent for the year ending 31st March, 1972 should become applicable for the subsequent ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again in Dec. 1974 Jardine Handerson Ltd. refused to pay the said sums. Thereafter the said firm on or about the 4th Sept. 1970 (1976?) referred the dispute for non-payment of the said commission of a sum of ₹ 64,423/- to the arbitration of Bengal Chamber of Commerce and Industry. Notice of arbitration was issued and on the 15th Oct. 1976 Jardine Handerson Ltd. instituted the suit being Suit No. 562 of 1976 in thia Court. Jardine Handerson Ltd. is the plaintiff in that suit and there are five defendants, namely General Enterprises, the said firm is defendant No. 1, Hoshang Shapwji Cawasji Mehta is the defendant No. 2, Sm. Aparna Chakraborty is the defendant No. 3, Miss Sudershana Chakraborty is the defendant No. 4 and Mukul Chandra Chakraborty is the defendant No. 5. In the plaint filed in the said suit after setting out the facts which I have mentioned hereinbefore, the plaintiff alleged that the said sum of ₹ 64,423/-was and is not payable by the plaintiff tq the defendant No. 1 under the circumstances mentioned in the plaint. It is stated that the agreement dated the 4th Dec. 1970 was brought about by the defendants who had acted fraudulently and in collusion and con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement. It is the further case of the plaintiff that the work or service alleged to have been done or rendered by the defendant No. 1 as agent was in fact, if at all. done and rendered by the defendant No. 5, an employee of the plaintiff end he being a whole time employee was never entitled to the said work rendered or the said service, if any, at the material time of an independent agent and was and is not entitled to receive any commission or remuneration from the plaintiff. It is the further case of the plaintiff that the defendant No. 2 was there only for the purpose of signing bills, papers and other documents as the alleged Managing Partner. Apart from lending his name and signature at the instance oi the defendant No. 5, as and when necessary, the defendant No. 2 never did or could do any work or render any service as partner of the defendant No. I in terms of the said agreement dated the 4th Dec 1970. It is further the case of the plaintiff that the firm of the defendant No. 1 was fraudulently set up in collusion and conspiracy with one another so that its name could be utilised as was done in fact for the purpose of fraudulently claiming and receiving money from the plai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with or taking any or any further steps in the said case No. 221 of 1976 before the Tribunal of Arbitration, Bengal Chamber of Commerce and Industry Calcutta; This application has been made by the defendants for stay of the suit under Section 34 of the Arbitration Act, 1940. The stay of the suit under Section 34 of the Arbitration Act, 1940 has been sought on the following propositions: Firstly, it has been argued that there are no averments in the plaint which, if true, would render the contract either void or voidable. According to the defendant petitioners, the misrepresentations alleged are against the respondent No. 5 who is not a party to the agreement. Therefore, it was argued that there might be a claim for damages in tort for the wrongful conduct of the respondent No. 5, It was, then, urged that even if the averments rendered the contract, in question voidable, the dispute whether the circumstances existed to make the said contract voidable was itself arbitrable under the arbitration clause, referred to hereinbefore. Lastly, it was contended that whether there was fraud or fraudulent misrepresentation which rendered the contract void or voidable, should, if the Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time of election to avoid it, not void ab initio, and similarly illegality under the proper law of the contract would merely make the policy unenforceable; accordingly the dispute ag to non disclosure or illegality was a dispute arising under the policy and was within the foreign jurisdiction clause, with the consequence that the leave to serve notice of the writ out of jurisdiction should be refused. Reliance was placed on this decision on the basis that on the analogy of the foreign jurisdiction clause in this case the arbitration clause survived until the contract was avoided and therefore the disputes between the parties in this case would be referable under the arbitration clause. In this connection learned advocate strongly relied on the observations of Lord Denning, M. R. at page 849 of the report to the following effect: Even if there was non disclosure, nevertheless non disclosure does not automatically avoid the contract. It only makes it voidable. It gives the insurers a right to elect, They can either avoid the contract or affirm it. If they avoid it, it is avoided in the sense, that the insurers are no longer bound by it. They can repudiate the contract and ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght not have application but where there are merely allegations which avoid the contract and do not make the contract void as such, such avoidance does not make the contract non existent and only would make the contract inoperative from the date of the avoidance. The contract In such a case survives until avoidance and therefore foreign jurisdiction clause survives along with it and would be applicable in an appropriate case. It must be remembered that the applicability of foreign jurisdiction clause depends on factors other than the factors on which the applicability of an arbitration clause under a contract depends. But, so far as analogy which is being drawn from the aforesaid decision is concerned from the observations of Denning, M. R. as well as the observations of Diplock, L. J. referred to here in before, it is clear that the said observations would only be applicable in the context of the allegations which make the contract voidable and where the contract is voidable from a particular date. In case of allegations of fraud or of other allegations which make a contract non est or void, the aforesaid ratio would have no application. 7-8. In this background before I deal w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 of the Indian Contract Act stipulates that consent is said to be free when it is not caused by coercion as denned in Section 15 or undue influence as defined in Section 16 or fraud as denned in Rule 17 or misrepresentation as defined in Section 18 or mistake, subject to the provisions of Sections 20, 21 and 22 and consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation or mistake. It is not necessary to deal with undue influence and coercion but it is necessary to refer to Section 17 of the Indian Contract Act which defines fraud and which states that fraud means and includes any of the following acts committed by a party to a contract or with his connivance, or by his agent with intent to deceive another party to induce him to enter a contract the suggestion, as a fact of that which is not true, by one who does not believe it to be true, or an active concealment of a fact by one having knowledge or belief of the fact, 3. 18 defines misrepresentation and Section 19 of the Indian Contract Act stipulates that when consent to an agreement is caused by coercion, fraud or misrepresentation, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rise between the council or their engineer and the contractor upon or in relation to or in connection with the contract the matter shall be referred to and determined by the engineer............ After he had done certain work under the contract the plaintiff re- fused to complete the work, alleging that he had been induced to enter into the contract by fraudulent misrepresentations made in the specification as to the nature of the ground where the work was to be done and he brought an action to recover damages for the alleged misrepresentation and to have the contract declared void. A summons was taken out for stay. It was held that the dispute was not in relation to or in connection with the contract and stay was refused. 11. In the case of Johurmull Parasram v. Louis Dreyfus Co. Ltd. reported in AIR 1949 Cal 179 a Division Bench of this Court held that in considering the question of stay of a suit, the Court was not entitled to go into the question as to what was substantially the nature of the claim. The Court must consider the suit as it was pleaded and framed. If it came to the conclusion that the suit as pleaded was a suit on the contract or arising out of the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the passengers' ticket there initially came into existence a contract between the railway administration and the passenger for the carriage of the latter's person. If a half ticket was obtained from the railway administration for carriage of an adult person, then that contract was caused by misrepresentation to the financial prejudice of the railway administration. That, however, did not make the contract void from its inception but the contract became voidable at the option of the railway administration. There as the Court found, the misrepresentation was of such a nature which made the contract voidable and as such did not make the contract non-existent or void. After discussing several authorities, the Supreme Court in the case of Union of India v. Kishorilal Gupta [1960]1SCR493 summarised the principles applicable to a case like this as follows: (1) An arbitration clause Is a collateral term of a contract as distinguished from its substantive terms: but none the less it is an integral part of it; (2) however comprehensive the terms of an arbitration clause may be, the existence of the contract is a necessary condition for its operation, it perishes with the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of an agreement between the parties had no jurisdiction to decide the issue. Sinha, J. after analysis of the several cases put the proposition of law as follows: The essential question seems to be (a) whether the plea taken, whether it is mistake, fraud, misrepresentation or coercion, makes the contract containing the arbitration clause void ab initio so that the challenge is as to the formation of the contract or (b) whether the plea relates to grounds for avoiding a contract validly entered into. If the latter, arbitration clause survives the avoidance or termination of agreement. If the former, the arbitration clause cannot operate. Reference may be made to the observations in the case of Lawson v. Wallasey Local Board (1882) 11 Q. B. D. 229. In the case of Alien Berry v. Union of India, [1971]3SCR282 the Supreme Court observed that the word 'arising' under the contract and 'in connection with the contract' were undoubtedly wide and comprehensive. It was nonetheless a question whether a dispute as to the compensation on the ground of unauthorised appropriation fell within the clause. Referring to the decision of Monro v. Bog-nor Urban District Council ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitration proceedings was no ground for not exercising the discretion of this Court to stay the proceedings. Reliance in this connection was placed on the observation of mine in the case of M/s. Cekop v. Asian Refractories Ltd. (1969) 73 Cal WN 192. In certain circumstances the fact that there is one additional party to the suit, who is not a party to the arbitration proceedings may not be relevant factor in considering whether the stay of proceedings should be granted or not. But, in this case, it has to be borne in mind that it is not correct to state that in the suit no relief, as such, is claimed against the defendant No. 5. The defendant No. 5 is a necessary and a proper party to the suit. Secondly, it has to be borne in mind that the defendant No. 5, Mukul Chandra Chakrabarty, is the central figure round whom the drama in this case moves. Therefore, any proceedings without the defendant No. 5 would not be proper, as the saying goes that to stage Hamlet without tha Prince of Denmark would be improper and to allow the stay will have the effect of keeping the defendant No. 5 away. 16. Then the question whether on the allegation of fraud, this Court should exercise its disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l come to in the second branch of the case before the Court, the Court may not, in the exercise of its discretion, refuse to interfere; but it does not appear to me to follow of necessity that this clause was not intended to apply to all questions, even including questions either imputing moral dishonesty, moral misconduct to one or other of the parties. I now come to the first ground, where personal fraud is in issue. Though I quite agree it is within the discretion of the Court to say, where one of the two partners desires it, that a dispute shall not be referred to arbitration, yet I must consider for a moment which of the two partners does desire to exclude arbitration. Does the party charging the fraud desire it, or the party charged with the fraud desire it? Where the party charged with the fraud desires it, I can perfectly understand the Court saying 'I will not refer your character against your will to a private arbitration.' It seems to me in that case it is almost a matter of course to refuse the reference, but I by no means think the same consideration follows when the publicity is desired by the person charging the fraud. His character is not at stake, and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of this Court in the case of Nitya Kumar v. Sukhendra Chandra, AIR1977Cal130 . In my opinion the fact that there are allegations of fraud is a factor which the Court should take into consideration in considering the exercise of discretion. The nature and type of the allegations are also relevant factors. If a party charged with fraud wants public trial stay should, subject to the above factors, be always refused. But even if the party charged with fraud does not want public trial but the party charging the fraud so wants there in appropriate cases the Court should refuse to grant stay. In my opinion this is such an appropriate case, 17-18. Having regard to the nature of the allegations of fraud and having regard to the facts averred, in my opinion, it cannot be said that there was no prima facie evidence of fraud. In that background, in my opinion, it would be an improper exercise of discretion of this Court to allow this question not to be agitated in public forum. 19. I, therefore, hold that in view of the nature of the allegations made, the allegations are as such which are not arbitrable under the arbitration clause in the instant case. I am further of the opinion that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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