Andhra HC (Pre-Telangana)
The Vijayalakshmi Mills Ltd. vs Shah Naval Mal Gulabchand & Sons. on 14 August, 1987
Equivalent citations: AIR1987AP294, AIR 1987 ANDHRA PRADESH 294
JUDGMENT Jeevan Reddy, J.
1. This Civil Miscellaneous Appeal is preferred against an order of the learned Subordinate Judge, Adoni, refusing to stay the suit under S. 34 of the Arbitration Act. Defendant is the appellant.
2. Plaintiff is a firm dealing in cotton at Adoni. The defendant is a Mill at Coimbatore. Whenever the defendant required cotton, it placed an order with the plaintiff which supplied cotton on payment. On 27-12-1985 the defendant requested the plaintiff to despatch cotton bales discounting the Hundis with Lakshmi Vilas Bank, at Adoni, and present the documents for payment through the State Bank of India, Coimbatore. Accordingly, the plaintiff sent 150 bales on 8-1-1986 in respect of which he drew six Hundis for Rs. 4,22,000/- in the name of the Carrier and discounted them through Lakshmi Vilas Bank, Adoni, instructing the Bank to present the Hundis to the State Bank of India, Coimbatore. Another 50 bales were despatched on 16-1-1986, valued at Rs. 1,40,000/-, following the same procedure with respect to Hundis. On 29-4-1986 the defendant released one Hundi for Rs. 60,000/- the remaining Hundis were returned on 12-5-1986. Thereupon the plaintiff called upon the defendant to make the payment the defendant requested the plaintiff to instruct its bankers at Coimbatore to retain the documents for some more time for clearance but, in spite of waiting for the period requested, the defendant did not make the payment. The plaintiff wrote to the defendant on 29-4-1986 to send certain quantity of yarn by discounting the Hundis in favour of the plaintiff, and also to clear the pending cotton Hundis with them. The defendant sent 25 bales of cotton yarn, the value whereof in a sum of Rs. 80,000/- was adjusted by the plaintiff towards arrears relating to the previous cotton transactions as per the understanding between them. The defendant sent another 97 bales of cotton yarn, but the plaintiff refused to take delivery thereof because of the defendant's conduct. On 11-6-1986 the defendant issued 20 cheques, each in a sum of Rs. 20,000/- totalling Rs. 4,00,000/-. On presentation, only eight cheques were honoured, and the rest dishonoured. The defendant made a further payment of Rs. 20,000/- later by a Bank Demand Draft. Thus the defendant paid a total sum of Rs. 1,80,000/- in addition to Rs. 69,000/- as against the total amount due in a sum of Rs. 5,62,000/-. The balance amount Rs. 3,13,000/- remained unpaid, whereupon the plaintiff issued a telegraphic notice and instituted a suit for Rs. 3,56,243-23 ps. An attachment was taken out of the defendant's accounts in certain Banks.
3. The defendant appeared and filed a petition under Sec. 34 of the Arbitration Act requesting for stay of the suit in view of the agreement between the parties to refer their disputes to arbitration. The defendant contended that, according to the Order Forms/agreement between the parties, the transactions between them shall be subject to the bye-laws of the East India Cotton Association, and that any disputes between them should be referred to arbitration as contemplated by the bye-laws of the said Association. In that view, it was submitted that the suit should not be allowed to go on. The defendant raised certain further pleas. They are : (i) a sum of Rs. 2,22,459.25 Ps. is due to the defendant from the plaintiff in respect of earlier transactions. The same represents the excess payment made by the defendant to the plaintiff; (ii) the sum of Rs. 80,000/- being the value of 25 bales of cotton yarn ought to have been adjusted against the suit amount. Since there are no arrears in respect of earlier transactions, there is no question of the plaintiff adjusting this amount against the arrears relating to earlier transactions; (iii) that, at the plaintiff's request the defendant sent 97 bales of cotton yarn, which the plaintiff refused to take delivery and thereby committed a breach of contract. The defendant is entitled to damages on this account; and (iv) in respect of 97 bales of cotton aforesaid, the defendant has incurred an expense of Rs. 51,137.05 Ps., on account of Bank interest, freight charges and Central Sales Tax. The defendant is entitled to be reimbursed for this amount.
4. The plaintiff in his counter-affidavit filed in the Interlocutory Application denied the several averments and claims made by the defendant.
5. The trial Court dismissed the application for stay mainly on the ground that inasmuch as the plaintiff's claim has been admitted by the defendant, and because there is no dispute regarding the defendant's liability for the suit amount, there is no dispute between the parties which needs to be referred to arbitration. The learned Subordinate Judge referred to the fact that the defendant had indeed issued cheques for practically the entire suit amount, but which were dishonoured. So far as the defendant's claims are concerned, the learned Subordinate Judge held that they are independent transactions.
6. In this appeal, it is contended by Sri K. Subrahmanya Reddy, the learned counsel for the appellant-defendant, that (i) according to bye-law 38-A of the East India Cotton Association, which becomes a term of the contract between the parties, "all unpaid claims whether admitted or not.........arising out of, or in relation to" the agreement between the parties have to be referred to arbitration. If so, the reasoning of the learned Subordinate Judge becomes untenable. Even an admitted claim, if unpaid, has to go for arbitration, and cannot be tried in Court, and (ii) the understanding arrived at on 29-4-1986 whereunder the defendant agreed to send cotton yarn in lieu of the amount due to the plaintiff, is a part and parcel, and a continuation of the original agreement between the parties; it is not an independent agreement. Therefore, the learned Subordinate Judge was wrong in holding that they are independent transactions. All these transactions along with the claim of the plaintiff are covered by bye-law 38-A of the East India Cotton Association and must, therefore, go for arbitration.
7. On the other hand, Sri K. Nagaraja Rao, the learned counsel for the respondent-plaintiff, supported the reasoning and the conclusion of the Court below.
8. The 200 bales of cotton were sold under Contract Nos. 2/2042 to 5/2042, each for 50 bales of cotton, the contract is in a printed form, with the plaintiff's name at the top. The relevant recitals in the contract form may be extracted. They read :-
"We confirm having sold to you 50 bales of cotton as per details shown below subject to the bye-laws of the East/South India Cotton Association, Ltd., Bombay/Coimbatore which contains amongst other things, provisions for settlement of disputes by arbitration and also subject to the terms and conditions mentioned overleaf".
Among the conditions mentioned overleaf, are :-
"(1)......All other disputes arising out of or in relation to this contract shall be referred to arbitration under the Bye-Laws of the East/South India Cotton Association, Ltd., Bombay/Coimbatore".
9. Bye-Law 38-A of the East India Cotton Association reads thus :-
"38-A : All unpaid claims, whether admitted or not, and all disputes and differences (other than those relating to***
(a) cotton transactions between members including any disputes as to the existence of such transactions; or
(b) cotton contracts (whether forward or ready and whether between members or between a member and a non-member) made subject to these Bye-Laws or subject to E.I.C.A. arbitration or containing words or abbreviations to a similar effect including any dispute as to the existence of such transaction provided in the latter case the parties had agreed in writing between them out of that agreement or any such transaction that may be entered into including any dispute as to the existence of such transactions shall be referred to arbitration under the bye-laws of the associations; or
(c) the rights and/or responsibilities of commission agents, muccadams and brokers not parties to such transactions or contracts; and
(d) commission agency agreement entered into subject to these bye-laws or subject to E.I.C.A. arbitration of containing words or abbreviations to a similar effect; or *** *** *** *** *** *** ***QUALITY) arising out of or in relation to :-
(e) cotton contracts covered by any such arbitration agreement;
Shall be referred to the arbitration of two disinterested persons, one to be chosen by each party from amongst the members, or their authorised or nominated representatives for the purpose of determination, settlement and adjustment of disputes or differences in respect of cotton transactions referred to above. The arbitrators shall have power to appoint as umpire and shall do so if and when they differ as to their award".
We may also set out bye-law 44-A of the Association, which reads thus :-
"44-A : Every cotton transaction entered into between members and every contract made subject to those bye-laws or subject to E.I.C.A. arbitration or containing words or abbreviations to a similar effect and every arbitration agreement to which these bye-laws apply, shall be deemed in all respects to be subject to these bye-laws and the parties to such transactions, contracts or agreements shall be deemed to have submitted to the jurisdiction of the Courts in Bombay for the purpose of giving effect to the provisions of these bye-laws".
10. Neither the plaintiff nor the defendant are members of the East/South India Cotton Association. The question in such a case is whether bye-law 38-A applies to transaction between such non-members.
11. The first thing to be noticed is that according to the contract Form, there must be a 'dispute' for being referred to arbitration. In this case, the plaintiff's claim is not disputed by the defendant. What all the defendant is saying is that there were certain other transactions relatable, and incidental to the suit transactions under which it is entitled to certain amounts which should go in discharge of the plaintiff's claim. As rightly pointed out by the learned Subordinate Judge, the plaintiff's claim is admitted by the defendant. It is also admitted that the defendant had issued cheques, and that most of them were dishonoured. It is also admitted by the defendant that it could not honour the Hundis as per the agreement between the parties. The court below was, therefore justified in holding that in such a case there is no dispute for being referred to arbitration. In Union of India v. B.C.S. & W. Mills, , it was held by the Supreme Court that before a suit can be stayed under S. 34 of the Arbitration Act, there should not only be a subsisting and binding arbitration agreement capable of being enforced between the parties, but that there must also exist a dispute which should go for arbitration. It was held that in the absence of a dispute between the parties, there can be no reference. In this case also the defendant, Union of India, had admitted the plaintiff's claim but pleaded that under another transaction between them, a particular amount was due to it, which should go in discharge of the plaintiff's claim. The Supreme Court held that the Union of India's claim under another independent contract cannot reasonably be regarded as a dispute "under or in connection" with the suit contract. In our opinion, the principle of the said decision clearly applies here. As we shall point out presently, the claims put forward by the defendant are independent claims, and constitute independent transactions and do not, and cannot be treated as forming part of, or supplemental or incidental to the suit contract.
12. Let us now consider whether the claims put forward by the defendant can be treated as supplemental, or incidental to the suit contract. It is not the case of the defendant that there was an umbrella agreement between the parties in pursuance of which the plaintiff was supplying cotton to it from time to time. On the averments made by the parties it is clear that each transaction was an independent transaction. It, therefore, follows that even if any amount is payable to the defendant by the plaintiff in respect of certain cotton transaction earlier to the suit transaction, the same cannot form part of, nor can they be treated as incidental or supplemental to the suit transaction. Therefore, the defendant's claims in a sum of Rs. 2,22,459.29 Ps. said to be the excess payment by it to the plaintiff in respect of earlier cotton transactions between them, cannot be said to be one arising "out of or in relation to" the suit contract. Now, so far as the subsequent understanding arriving at on 29-4-1986 is concerned, in pursuance of which the defendant despatched 25 bales of cotton yarn and 97 bales of cotton yarn on two different dates, we are of the opinion that it was only a mode of discharging the debt (due to the plaintiff) devised by the parties. Admittedly, the amount remained payable to the plaintiff. As against Rs. 5,62,000/- payable under eight Hundis, the defendant had honoured only one Hundi in a sum of Rs. 69,000/-. The remaining Hundis were not honoured. The financial position of the defendant was such that it was in no position to make payment immediately. Hence the parties devised a method of discharging the debt due to the plaintiff. It was agreed that the defendant should send cotton yarn to the plaintiff and the amount realized thereunder should go towards discharge of the plaintiff's claim. It is in pursuance of this understanding that the defendant sent 25 bales of cotton yarn. Even here, there is a dispute between the parties. While the plaintiff says that this understanding related to the arrears payable by the defendant in respect of transactions earlier to the suit contracts, the defendant's claim is that it related to the suit contracts themselves. In either event, it cannot be said that this understanding is a supplemental agreement to the suit contracts. The test to be applied in this behalf is enunciated by the Supreme Court in R. G. Insurance Co. v. Pearey Lal, . It is stated in the following words :
"The question to be decided is whether the point on which the parties are in dispute is a difference "arising out of the policy" in terms of Cl. 7 of the policy. The test for determining such a question has been laid down in a series of cases and is simple one. The test is whether recourse to the contract by which the parties are bound is necessary for the purpose of determining the matter in dispute between them. If such recourse to the contract is necessary, then the matter must come within the scope of the arbitrator's jurisdiction".
In our opinion, the same test applies even where the words are "arising out of or in relation to". Applying the said test, it must be said that recourse to the original contracts between the parties is not at all necessary for the purpose of determining whether the defendant appellant's claims are justified, or not. The correctness and justifiability of these claims have to be decided with reference to the understanding arrived at between the parties on 29-4-1986.
13. Mr. K. Subrahmanya Reddy, the learned counsel for the defendant-appellant, sought to contend that the words "arising out of or in relation to" are words of wide import and, therefore, in the circumstances of this case, the understanding arrived at on 29-4-1986 should also be deemed as one arising from, or at any rate, one relating to the suit contracts. There is no disputing the fact that the words aforesaid are of wide import, but that does not mean that their sweep should be extended beyond their conceptual confines. Learned Counsel placed strong reliance upon the decision of the Supreme Court in Renusagar Power Co. Ltd. v. General Electric Co., . He read out to us several passages from the said decision. We do not, however, propose to refer to those passages at any length for the reason that there is a qualitative difference between the facts and the provisions of law considered therein, and the facts of this case and S. 34 of the Arbitration Act, with which we are concerned herein. Under the Foreign Awards (Recognition and Enforcement) Act, 1961, S. 3 which provides for stay of legal proceedings in respect of a matter which must go for arbitration, is mandatory, while under S. 34 of the Arbitration Act it is discretionary. Secondly, the disputes raised for decision in the suit, i.e., even on the basis of plaint averments, did undoubtedly arise from, and were related to the contract between the parties. The plaintiff there asked for a declaration that the claims referred to arbitration by the defendant therein were beyond the purview of the arbitration agreement contained in the contract between the parties, on the ground that the claims raised by the defendant and referred to arbitration, viz., claims for compensatory damages and delinquent interest arising from certain delays and defaults on the part of the plaintiff in remitting the instalments according to agreement, were not matters arising from the contract and, therefore, could not be arbitrated. In the context, the Court went elaborately into the meaning and scope of the words "arising out of" and "in respect of", and held that the claims raised by the defendant did arise out of, or in respect of the contract and must therefore go for arbitration. Accordingly, it was held that the suit must be stayed. It is question of fact in each case to be determined whether certain claims raised by a party do, or do not arise from, or relate to the contract between the parties. It is for this reason that we desist from referring to the said decision at any length. For the same reason it is also not necessary to refer to the facts in Printers (Mysore) Pvt. Ltd. v. P. Joseph, . The words which fell for consideration in the said decision were to the effect; if in the interpretation or application of the contract any difference of opinion arises between the parties, the same shall be referred to arbitration. It was held that these words are frequently used in arbitration agreements and generally cover disputes between the parties in regard to the construction of the relevant terms of the contract, as well as their effect.
14. For the above reasons, we hold that the claims raised by the defendant cannot be treated as arising from, or in relation to the suit contract. Accordingly, we held that these claims cannot be said to have brought into existence a dispute between the parties which needs to be referred to arbitration in terms of the original contracts. So far as the original contracts are concerned, as pointed out hereinbefore, there is no dispute as such between the parties, since the plaintiff's claim has been clearly admitted by the defendant.
15. The next aspect we must consider is whether bye-law 38-A of the East/South India Cotton Association does indeed govern the parties and the subject-matter of the suit. For this purpose we may assume that even an admitted and unpaid claim can be referred to arbitration under bye-law 38-A. We may also assume that for the purpose of the said bye-law a dispute does exist between theoes exise between from, or in relation to the suit contracts. The more important questions whether the said bye-law applies at all? We have already mentioned the fact that both the parties to the suit are not members of the East/South India Cotton Association. If so, cls. (a) to (d) of the bye-law do not come into the picture. This much is conceded by the learned counsel for the appellant. His contention, however, is that by virtue of cl. (e) of the said bye-law, the contracts between non-members are also brought within the purview of the said bye-law. The contention is that even though the parties herein are not members of the Association, still it was open to them to agree to refer their disputes to arbitration in terms of, and as provided by the said bye-law. Strong reliance is placed upon the decision of the Bombay High Court in Arthur & Co. v. S. K. & Co., . Ordinarily speaking, the bye-laws of an Association apply to, and govern only the members thereof. Bye-Laws do not have statutory force and, therefore, cannot affect the rights of, or bind third-parties. A reading of bye-law 38-A shows that it provides for arbitration of disputes arising amongst members, as also between members and non-members. The bye-law does not specifically provide for disputes arising between non-members. Cl. (e) says "cotton contract covered by any such arbitration agreement". In our opinion, the word 'such' indicates that the contracts and arbitration agreements contemplated by the said clause are of the nature referred to in cls. (a) to (d). This is also the opinion of the Bombay High Court in the decision aforesaid, If was held in the said decision.
"Then occur the words 'any such arbitration agreement'. Here the word 'such' means of the nature mentioned earlier in sub-clause (a). The word 'such' is merely descriptive and the inquiry therefore would be whether any provision of the nature of an arbitration agreement finds a place in any of the earlier sub-cls. (a) to (d)..........".
However, the Bombay High Court proceeds further and holds that because the word 'any' is used before the word 'such' it was intended to give a wider application to the clause and, therefore, it takes in cotton contracts between strangers as well. It was also pointed out that cl. (e) does not use words like 'between members', or 'between a member and a non-member', or any other similar descriptive words of limitation. Assuming that the interpretation placed upon cl. (e) by the Bombay High Court is correct, even then we are not inclined to interfere with the order of the Court below in this case. We have already pointed out that the plaintiff's claim is not disputed by the defendant. He has merely raised certain other counter-claims, broadly so-called, which according to the defendant, must go in discharge of the plaintiffs claim. The defendant's claims, as we have already held, do not arise from, nor can they be said as relating to the suit contracts. If so, the disputes between the parties in this suit cannot be referred to arbitration in terms of bye-law 38-A because the defendant's claims cannot go to, and cannot be decided by the arbitrators contemplated by bye-law 38-A. It is also not possible to split the suit and stay a part of it, and allow the remaining part to go on. We have already referred to the fact that in this case it is admitted that the Hundis were not honoured by the defendant except one Hundi, and that later the defendant issued cheques for a total amount of Rs. 4,00,000/-, out of which ultimately Rs. 1,80,000/- could be realized and the rest were dishonoured. The balance amount is admittedly payable.
16. We must also say that staying a suit under S. 34 of the Arbitration Act is a matter within the discretion of the trial Court. It is well settled that unless the discretion is exercised in a perverse manner, or is vitiated by a misdirection in law, the appellate Court would not interfere. Left to itself the appellate Court may come to a different conclusion, but that is no ground for interfering with the exercise of discretion by the Court below; (vide; para 9 in Printers (Mysore) Pvt. Ltd. v. P. Joseph, and U.P. Co-operative Federation v. Sunder Bros., Delhi, ). Indeed, this is the law with respect to all discretionary orders. In this case, we do not think that the exercise of the discretion by the lower Court is vitiated in any manner.
17. Civil Miscellaneous Appeal, accordingly, fails and is dismissed with costs, Advocate's fee Rs. 250/-.
18. Sri Subrahmanya Reddy, the learned counsel for the appellant makes an oral request for grant of leave to appeal to Supreme Court under Art. 133 of the Constitution. We do not, however, think that this appeal involves any substantial question of law of general importance, which in our opinion needs to be considered by the Supreme Court. The oral leave is accordingly rejected.
Anjaneyulu, J.
19. I agree with my learned brother, Jeevan Reddy, J., that this appeal should be dismissed for the reasons stated by him in his opinion. I should, however, like to make some observations.
19A. The facts have been copiously stated by my learned brother in his opinion, and I do not, therefore, wish to repeat the same. It is not in dispute that the plaintiff entered into four separate contracts with the defendant on 27-12-1985 for the supply of 50 cotton bales each for the aggregate consideration of Rs. 5,62,000/-. The defendant executed 8 hundis to cover the aforesaid consideration and advised the plaintiff that the hundis may be discounted with the plaintiff's bankers. Laxmi Vilas Bank Limited, Adoni, and presented for realisation through the defendant's bankers at Coimbatore, State Bank of India. We are told that the hundis were payable after expiry of 45 days from the date of drawal. It is also not in dispute that out of the 8 hundis only one hundi was honoured for Rs. 69,000/- and the rest of the hundis were dishonoured. A further extension of one month given by the plaintiff to the defendant did not yield any result. In view of the dishonour of the hundis the defendant issued 20 post-dated cheques of Rs. 20,000/- each for a total sum of Rs. 4,00,000/- towards part-payment of the balance consideration of Rs. 4,93,000/-. Against these post-dated cheques, only 8 cheques were realised for a total consideration of Rs. 1,60,000/- and a further sum of Rs. 20,000/- was also paid by the defendant through a Demand Draft with the result that against the balance consideration of Rs. 4,93,000/-, Rs. 1,80,000/- was paid and the balance of Rs. 3,13,000/- remained unpaid. There is absolutely no dispute so far as the above facts are concerned.
20. The contention of Mr. Subrahmanya Reddy, learned counsel for the defendant, however, is that although the above facts are not in dispute and normally no arbitration would be called for, there are certain matters intimately connected with the transactions for the supply of 200 bales of cotton by the plaintiff to the defendant which are in dispute. Learned counsel identifies five distinct matters as constituting the disputes arising out of or in relation to the contract. They are :
(1) a sum of Rs. 2,22,459-29 is due to the defendant from the plaintiff in respect of other transactions and this sum should be set off against the sum payable to the plaintiff. It is pointed out that the plaintiff is denying that any amount is due to the defendant at all.
(2) When the hundis were dishonoured on account of non-availability of funds with the defendant, an "understanding was reached between the parties that the defendant shall supply cotton yarn to the plaintiff and the sale price of cotton yarn shall be utilised by the defendant for the purpose of payment of the unpaid hundis/cheques. Pursuant to this understanding the defendant supplied 25 bales of cotton yarn of the value of Rs. 80,000/-. The plaintiff received the cotton yarn and yet adjusted the sum of Rs. 80,000/- payable to the defendant against other dues without adjusting the sum against unpaid hundis/cheques. This was clearly contrary to the understanding reached between the parties.
(3) As part of the aforesaid understanding the defendant supplied to the plaintiff 97 bales of cotton yarn. The sale proceeds of such cotton yarn would have been available for payment of the unpaid hundis/cheques. The plaintiff refused to take delivery of the 97 bales, thereby committing a breach of the understanding reached.
(4) The defendant put forward a claim against the plaintiff for payment of Rs. 51,137-05 towards bank interest, freight, Central sales tax in respect of the 97 bales of cotton yarn which the plaintiff refused to take delivery. The plaintiff declined to accept the liability to pay the sum of Rs. 51,137-05.
(5) The defendant suffered damage on account of the plaintiff refusing to take delivery of the 97 bales and consequently a claim for damages lies against the plaintiff which is also denied.
Learned counsel for the defendant urges that the parties deliberately agreed to be governed by the bye-laws of the East India Cotton Association Limited (Cotton Association; for short). Accordingly, the bye-laws of the Cotton Association govern the matter, although both parties are non-members of the Cotton Association. Learned counsel refers to bye-law 38-A which provides that all unpaid claims, whether admitted or not, and all disputes and differences (other than those relating to quality) arising out of or in relation to shall be referred to arbitration. Mr. Subrahmanya Reddy's main contention is that the expression "arising out of or in relation to", occurring in bye-law 38-A is of wide amplitude and take in its sweep all matters, ancillary and incidental, to the original contract. It is claimed that the five items referred to above arise out of or in relation to the original contract entered into between the parties and consequently arbitration under bye-law 38-A cannot be avoided. It is, therefore, necessary to examine whether the five items listed by Sri Subrahmanya Reddy arise out of or in relation to the original contract. Adverting to the 'understanding' allegedly reached between the plaintiff and the defendant concerning the supply by the defendant to the plaintiff of cotton yarn, there is no material to support the proposition that the dishonour of the hundis/cheques and the subsequent supply of cotton yarn by the defendant to the plaintiff form part of the same transaction. No connection direct or remote, exists between the two. Attention has been invited by the learned counsel to letters dt. 29-4-1986 and 17-11-1986 addressed by the plaintiff to the defendant in support of the allegation that the cotton yarn was sold by the plaintiff to the defendant so that the amount paid by the plaintiff against the sale of cotton yarn by the defendant could be utilised for the purpose of honouring the dishonoured hundis/cheques. There is nothing in the two letters above referred specifically to that effect. In letter dt. 29-4-1986 addressed by the plaintiff to the defendant it was mentioned that;
"with regard to our cotton Hundis at your Bankers we request you to clear them immediately after discounting your yarn hundis".
In the letter dt. 17-11-1986 addressed by the plaintiff to the defendant it was stated that :
"the 25 cotton yarn bales may be despatched through SRMT lorry service to Adoni as promised by you against our cotton dues".
The averments contained in the aforementioned two letters suggest a mode of payment and nothing more. The letters do not indicate that the supply by the defendant of the cotton yarn to the plaintiff was deliberately agreed upon for the specific purpose of the plaintiff putting in the hands of the defendant the funds requisite for the purpose of discharging the unpaid hundis/cheques. It must, therefore, be held that factually no connection exists between the non-payment of hundis/cheques and the two transactions relating to the supply of cotton yarn of 25 bales and 97 bales by the defendant to the plaintiff. The fact cannot be lost sight of that the plaintiff and the defendant are engaged in a number of business transactions over years. The distinct possibility is the supply of cotton yarn by the defendant to the plaintiff represents a set of business transactions entered into between the parties in the normal course having no connection whatsoever with the contract for the supply of 200 bales of cotton by the plaintiff to the defendant. The suggestion of the plaintiff to discount the hundis relating to cotton yarn and clear the unpaid hundis, does not spell out any 'understanding' that the supply of cotton yarn by the defendant to the plaintiff is an integral part of the original contract that under which the plaintiff supplied 200 bales of cotton to the defendant. As factually no foundation is laid for establishing any connection between these two transactions, it follows that the supply of 25 bales and 97 bales of cotton yarn by the plaintiff to the defendant are entirely independent transactions unconnected with the original contract under which the plaintiff sold 200 bales of cotton to the defendant. In view of the above finding items 2, 3, 4 and 5 out of the five alleged matters of dispute referred to by the learned Counsel for the defendant specified in para 3 (supra) cannot be considered to be disputes arising out of or in relation to the original contracts for the supply of 200 bales of cotton by the plaintiff to the defendant. That leaves only item 1 concering the claim that the plaintiff was owing to the defendant a sum of Rs. 2,22,459/- and the denial of that claim by the plaintiff.
21. It is not denied that there are a number of business transactions between the parties even before the impugned contracts dt. 27-12-1986. Assuming that the defendant's claim is correct, undoubtedly the amount of Rs. 2,22,459/- is due by the plaintiff to the defendant in respect of transactions other than the contracts in question. It is not denied that there was no agreement between the parties that the aforesaid sum should be adjusted against the sale proceeds of Rs. 5,62,000/- relating to 200 bales of cotton sold by the plaintiff to the defendant. Indeed any such contention would be unsupportable as to defendant executed hundis for the full consideration of Rs. 5,62,000/- without adjustment of the sum of Rs. 2,22,459/-. After dishonour of the hundis post-dated cheques were also issued without adjusting the aforementioned sum. These facts would clearly establish that there is no connection whatsoever between the sum of Rs. 2,22,459/- alleged owing by the plaintiff to the defendant and the contracts for the sale of 200 bales of cotton to the defendant. There is no evidence whatsoever that there was any understanding that the sum of Rs. 2,22,459/- may be adjusted against the sale proceeds of 200 bales of cotton and that the denial on the part of the plaintiff now to make such adjustment raises a dispute which arises out of or in relation to the original contract. In our opinion, it is entirely an independent transaction and is totally unconnected with the original contracts for the sale of 200 bales of cotton by the plaintiff to the defendant.
22. Thus factually no dispute exists as far as the non-payment by the defendant of Rs. 3,13,000/-to the plaintiff under the original contracts. The five items of alleged disputes enumerated by Sri Subrahmanya Reddy, do not arise out of or bear any relation to the original contracts and are totally independent and unconnected with the original contracts. The question of arbitration, in the circumstances, does not arise, it is well to notice that bye-law 38-A provides for arbitration of all unpaid claims, whether admitted or not, and all disputes and differences arising out of or in relation to the contracts. If no disputes or differences exist concerning the original contract, bye-law 38-A does not give rise to arbitration. The first-part of bye-law 38-A relating to "all unpaid claims, whether admitted or not", has no relevance in the present case. The terms and conditions specified on the reverse of the four original contracts provide for arbitration, if disputes arise and not otherwise. There is no contract between the parties that even if no disputes arise the matter should be referred for arbitration under bye-law 38-A. The provision incorporated in the contract restricts the application of bye-law 38-A only to the extent indicated in the contract itself and that is the contract between the parties. The parties cannot be permitted to travel beyond that contract specifically agreed.
23. The decision of the Supreme Court in Union of India v. Birla Cotton Mills Ltd., is the clear authority for the proposition that for enforcement of the arbitration clause there must exist a dispute; in the absence of a dispute between the parties to the arbitration agreement, there can be no reference.
24. A perusal of the order of the learned Subordinate Judge dismissing the application filed by the defendant under S. 34 of the Arbitration Act, would show that he had exercised the discretion judicially and in a proper manner. A party to an arbitration agreement against whom legal proceedings have been commenced cannot claim the stay of legal proceedings instituted in a court as a matter of right, relying on the arbitration agreement. Where the trial Court exercise the discretion properly and judicially the appellate court should be slow to interfere with the exercise of the said discretion. As is often said it is not open to the appellate court to substitute its own exercise of discretion for that of the trial judge, it is not necessary to cite authorities to support these well-established propositions. Reference may, however, be made to the decision of the Supreme Court in Printers (Mysore) Pvt. Ltd. v. Pothan Joseph, AIR 1969 SC 1156.
25. The appeal is dismissed with costs awarded by my learned brother.
26. Appeal dismissed.