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PETITIONER:

FOOD CORPORATION OF INDIA

Vs.

RESPONDENT:

M/s. THAKUR SHIPPING CO. LTD. & ORS.

DATE OF JUDGMENT19/12/1974

BENCH:

GUPTA, A.C.

BENCH:

GUPTA, A.C.

KRISHNAIYER, V.R.

GOSWAMI, P.K.

CITATION:

1975 AIR 469 1975 SCR (3) 146

1975 SCC (4) 815

ACT:

Arbitration Act (10 of 1940), s. 34-'Ready and willing at

the time when the proceedings were commenced to do all

things necessary to the proper conduct of arbitration'-Scope

of.

HEADNOTE:

The appellant chartered two ships belonging to the 2

respondents for carrying rice from Thailand to India. The

Charter-party provided inter alia that any dispute should be

referred to 2 arbitrators one to be nominated by the owners

and the other by the Charterers. The appellant made claims

against one respondent for damages for short delivery, and

against the other for damages for short delivery and damage

in respect of the consignment of rice. The appellant,

thereafter. suggested to one of the respondents to agree to

arbitration 'by a single arbitrator, but there was no

response from that respondent. The appellant also wrote to

the agents of the other respondent urging them to take steps

for referring the dispute, but the appellant only got

evasive replies.

The appellant, a few days before the claims would be barred

by time. filed suits against each of' the respondents for

recovery of the amounts claimed by it.

The respondents applied for stay of trial of the suits under

s. 34 of the Arbitration Act, 1940. The trial court

rejected the applications, but the High Court allowed the

prayer for stay on the ground that the decision of the trill

court was perverse.

Allowing the appeals to this Court,

HELD): (1) Under s. 34, one of the conditions that the

applicant for stay should satisfy the court is that not only

he is but also was, at the commencement of the proceedings,

ready and willing to do every thing necessary for the proper

conduct of the arbitration. Where a party to an

arbitration, agreement chooses to maintain silence in the

face of repeated requests by the other party to take steps

for arbitration, the case is not one of mere inaction.

Failing to act %,hen a party is called upon to do so is a

positive gesture signifying unwillingness or want of

readiness to go to arbitration especially when legal

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proceedings in Court were about to be barred by time. [150F-

G; 151E-F; 152C]

In the present case. one of the respondents sent evasive

replies to the appellant in reply to the appellants letter

urging them to take steps for referring the dispute to

arbitration.

As regards the other respondent. the appellant's suggestion

of a sole arbitrator was contrary to the arbitration clause

of the charter-party, but the appellant's deviation was not

a valid excuse for that respondent to remain silent and

inactive. If the respondent was ready and willing to go to

arbitration. the respondent would have replied that it was

not willing to any departure from the arbitration clause,

but it did not send any replies to the appellant or do

anything for reference of the dispute to arbitration

according to the arbitration clause. [152A-C]

The trial court found as a fact that the respondents were

not ready and willing to go to arbitration at the time when

the suit was instituted. Silence and inaction on their part

may- in the circumstances, very well justify the inference

that they were not ready and willing to go to arbitration.

The conclusion was not arbitrary or Perverse and the High

Court was wrong in so characterizing it. [151G; 152C]

Anderson Wright Ltd. v. Moran and Company [1955] 1 SCR 862

followed.

147

Subbal Chandra Bhur v. Md. Ibrahim & Anr. AIR 1943 Cal. 481

referred to.

(2) It is true that a court should not allow a party to

an arbitrationagreement to proceed with the suit in breach

of the solemn obligation to seekresort to the tribunal

selected by him; but this is subject to the terms of s. 34,

one of which is that the other party to the agreement must

remain 'ready and willing to do all things necessary for the

proper conduct of the arbitration.' [152E-F]

Michael Coloderz & Ors. v. Serajuddin and Company [1964] 1

SCR 19 referred to.

JUDGMENT:

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1518 and

1519 of 1974.

Appeal by special leave from the judgment & order dated the

8th August 1973 of the Madras High Court in A.A.D. Nos. 389

and 401 of 1971.

M.Krishna Rao and B. Parthasarthy, for the appellant (in

C.A. No. 1518/74.)

Niren De, Attorney General for India and B. Parthasarthy,

for the appellant (in C.A. No. 1519/74.)

N.M. Ghatate and S. Balakrishnan, for respondent No. 1

(in C.A. No. 1518/74).

S.T. Desai, N. M. Ghatate and S. Balakrishnan, for

respondents (in C.A. No. 1519/74.)

The Judgment of the Court was delivered by

GUPTA, J. In these two appeals by special leave the

appellant, Food Corporation of India, challenges the

correctness of two orders passed by the High Court of Madras

staying under sec. 34 of the Arbitration Act two suits for

damages it had instituted in the Court of the Subordinate

Judge at Tuticorin. The question for consideration is

whether the first respondent in each of these two appeals,

who are the first defendant in the respective suits out of

which these appeals arise, was " ready and willing to do all

things necessary to the proper conduct of the arbitration"

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as required by sec. 34. This is really a question of fact

and the trial court found that in neither case the defendant

who applied for stay satisfied this test. On appeal, the

High Court stayed the suits reversing the, decision of the

trial court by two separate orders passed on the same day.

Whether the High Court acted rightly would depend upon the

facts and circumstances of the two cases which are

essentially similar. It is necessary therefore to state

briefly the facts leading to the institution of the suits.

The appellant Food Corporation of India, referred to

hereinafter as the Corporation, chartered two ships

belonging respectively to M/s. Thakur Shipping Co. Ltd. and

the Great Eastern Shipping Co. Ltd. for carrying rice from

Thailand to India. The Charter-Party between the

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Corporation and the shipping companies contained a clause,

namely clause 42, which reads as follows :

"Any dispute under this charter to be referred

to arbitration in India one Arbitrator to be

nominated by the owners and the other by the

charterers and in case the Arbitrators shall

not agree then to the decision of an umpire to

be final and binding upon both parties."

The bills of lading provided inter alia that the contract

between the parties was subject to the Indian Carriage of

Goods by Sea Act, 1925 and that the provisions of the Act

would be deemed as incorporated in the bills of lading. The

bills of lading contained a clause that "no suit shall be

maintained unless instituted within one year after the date

on which the ship arrived or should have arrived at the port

of discharge notwithstanding any provision of law of any

country or state to the contrary. The Indian Carriage of

Goods by Sea Act, 1925 in clause 6 of Article III of the

Schedule also provides inter alia that"the carrier and the

Ship shall be discharged from all liability in respect of

loss or damage unless suit is brought within one year after

delivery of the goods or the date when goods should have

been delivered".

The ship belonging to M/s. Thakur Shipping Co. Ltd., first

respondent in Civil Appeal No. 1518 of 1974 and first

defendant in suit No. 103 of 1970 out of which this appeal

arises, arrived at Tuticorin Port, which is the, port of

discharge., on August 31, 1969 and discharge of cargo was

completed on September 13, 1969. The Corporation made a

claim for damage for short delivery, provisionally on

November 29, 1969 and finally on January 24, 1970. On July

2, 1970 the Corporation sent a telegram to the second

defendant in the suit, M/s. Pent Ocean Steamship Private

Ltd., Bombay, who were the Operating Managers of the ship

concerned, asking them to confirm whether they were

agreeable to refer the dispute as to short delivery to the

sole arbitration of the Director General Shipping, Bombay

stating that the matter was ,'most immediate". it is to be

noted that the proposed reference to the sole arbitration of

Director General Shipping was a deviation from, clause 42 of

the Charter-Party. There was no reply to this telegram. On

July 8, 1970 another telegram repeating the earlier proposal

was sent to the second defendant again emphasizing the

urgency of the matter. On July 9, 1970 the second defendant

sent a reply saying that they were no longer the Operating

Managers and asking the Corporation to contact the first

defendant for further advice. The Corporation then sent a

telegram on July 10, 1970 to the first defendant seeking to

know if they were agreeable to have the dispute referred to

the sole arbitration of Director General Shipping, Bombay

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repeating that the matter was "most urgent". The first

defendant chose not to answer the telegram. Any reminder

after this, one expected, would be sent to the first

defendant but on July 25, 1970 the Corporation

telegraphically asked the second defendant again to nominate

an arbitrator in terms of clause, 42 of the Charter Party in

case the proposal for arbitration by the Director General

Shipping, Bombay was not acceptable. In this telegram it

was stated that the time within which the claim should be

made was to expire shortly and that failure on the Part

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of the other side to take prompt action for reference of the

dispute to arbitration would compel the Corporation to take

legal proceedings. Failing to get any response from the

other direction, the Corporation ,on August. 31, 1970

instituted suit No. 103 of 1970 in the Court of the

Subordinate Judge at Tuticorin for recovery of Rs.

1,57,724/73p. on account of short delivery and damage to the

rice shipped. A few days more delay would have barred the

claim. Served with the summons of the suit, the first

defendant applied under sec. 34 of the Arbitration Act for

stay of the suit. As stated already, the trial court re-

jected the application, on appeal the High Court reversed

that decision and allowed the prayer for stay on the view

that the trial court had failed to exercise its discretion

properly. Civil Appeal 1518 of 1974 arises out of this

order.

The facts in Civil Appeal 1519 of 1974 are these. The ship

belonging to the first respondent in this appeal, the Great

Eastern Shipping Co. Ltd., arrived at Tuticorin Port from

Thailand on August 15, 1969 and discharge of cargo was

completed on August 27, 1969. By a letter dated November

29, 1969 addressed to the steamer agents of the first

respondent, the clearing agents of the Corporation made a

claim for short delivery and damage in respect of the

consignment of rice. The steamer agents, who figure as the

second respondent in this appeal, replied to this letter on

December 2, 1969 starting : "We have referred the matter to

our principals and shall revert on hearing from them".

After waiting for about four months, the clearing agents of

the Corporation again wrote to the second respondent asking

them to contact their principals and to "settle the claims

immediately". The reply sent to this letter by the second

respondent on April 9, 1970 repeated : "We have referred the

matter to our principals and shall revert on hearing from

the&'. Having heard nothing for about a month, the clearing

agents of the appellant wrote again to the second

respondent on May 11, 1970 wanting to know the attitude of

the first respondent regarding the, claim adding that if the

claim was not settled in time the appellant would have to

take legal action to recover the amount of claim. By their

letter dated May 14, 1970 the second respondent acknowledged

receipt of that letter and repeated for the third time that

they had referred the matter to their principals and "shall

revert on hearing from them". Thereafter on July 9, 1970

the second respondent wrote again to the appellant's agents

only to know how the appellant had disposed of the damaged

rice adding that this information would enable them to

advise their principals. Finally, on July 29, 1970 the

District Manager, Food Corporation of India, Tuticorin,

wrote to the first respondent stating, inter alia, that if

the claim was not settled on or before August 13, 1970 the

appellant would be constrained to take legal action. From

the dates given above, it would appear that the claim was

going to be barred in a few days. To this letter there was

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no reply. On August 14, 1970 the Corporation instituted

suit No. 101 of 1970 in the Court of the Subordinate Judge

at Tuticorin for recovery of a sum of Rs. 1,12.420.70p.

impleading as the first and second defendant respectively

the first and second respondent of this appeal. Receiving

the summons of the suit, the first defendant applied for

stay under sec. 34 of the Arbitration Act. The trial court

150

declined to stay the suit and rejected the application. on

appeal the High Court held that the decision of the trial

court was perverse and allowed the application for stay.

Civil Appeal 1519 of 1974 is directed against this order of

the High Court.

The trial court held that the fact that the in either case

the first defendant took no steps for referring the matter

to arbitration in spite of being urged to do so by the

plaintiff indicated that the defendants were not ready and

willing to go to arbitration and were only waiting for the

claim to be barred by lapse of time. As stated already, the

bills of lading contained a provision that no suit to

enforce such claims would be maintainable after one year

from the date of arrival of the ship at the port of

discharge. The Indian Carriage of Goods by Sea Act also

provides in clause 6 of Article III of the Schedule that

"the carrier and the ship shall be discharged from all

liability in respect of loss or damage unless suit is

brought within one year after delivery of the goods or the

date when the goods should have been delivered". The High

Court reversed the decision of the trial court relying on a

decision of the Calcutta High Court reported in Subal

Chandra Bhur v. Md. Ibrahim & Anr. (1) In that case S. R.

Das J., as his Lordship then was. observed at one place in

his Judgment : "Mere inaction priOr to the commencement of

the legal proceedings cannot, in my opinion, be construed as

want of readiness and willingness to go to arbitration at

the commencement of the legal proceedings". The proceeding

sought to be stayed in that case was a partnership action

and the observation was made in repelling a contention that

there should be no stay as none of the partners thought fit

to take advantage of the arbitration clause for a long time

after the partnership came to an end. Apparently, in this

case inaction did not affect in any way the matter proposed

to be referred to arbitration. But the two suits out of

which the instant appeals arise were instituted just before

the plaintiff's claim in either case was going to be barred

by time-, it is not disputed that after the lapse of one

year from the date when the goods were to be delivered, the

defendants would have been discharged from all liability in

respect of any loss or damage and there would have been no

live dispute to be referred to arbitration. Where a party

to an arbitration agreement chooses to maintain silence in

the face of repeated requests by the other party to take

steps for arbitration the case is not one of "mere

inaction". Failing to act when a party is called upon to do

so is a positive gesture signifying unwillingness or want of

readiness to go to arbitration. The aforesaid observation

in Subal Chandra Bhurs case (surpra) does not therefore

appear to have any application on the facts of the cases be-

fore us.

The High Court pointed out that in each of these two suits

the first defendant applied for stay under sec. 34 as shown

as they received the summons of the suit stating in the

application that they were ready and willing to have the

dispute settled by arbitration. The High Court held that

the requirement of sec. 34 is satisfied if the defendant

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expresses his willingness to go to arbitration at the

earliest opportunity after the

(1) A.I.R. 1943 Cal. 481.

151

suit is instituted. in our opinion the High Court was wrong

in taking this view. Sec. 34 of the Arbitration Act reads :

"Where any party to an arbitration agreement

or any person claiming under him commences any

legal proceedings against any other party to

the agreement or any person claiming under him

in respect of any matter agreed to be

referred, any party to such legal proceedings

may, at any time before filing a written

statement or taking any other steps in the

proceedings, apply to the judicial authority

before which the proceedings are pending to

stay the proceedings; and if satisfied that

there is no sufficient reason why the matter

should not be referred in accordance with the

arbitration agreement and that the applicant

was, at the time when the proceedings were

commenced, and still remains, ready and

willing to do all things necessary to the

proper conduct of the arbitration, such

authority may make an order staying the

proceedings."

The observation of Das J. in Subal Chandra Bhur's case on

which the High Court relied, is preceded by the following

sentence : "Further, the readiness and willingness required

by see. 34 of the Act has to exist at the commencement of

the legal proceedings and has to continue up to the date of

the application for stay". In Anderson Wright Ltd. v. Moran

and Company(1), this Court enumerating the conditions that

should be fulfilled before a stay may be granted under sec.

34 notes as one of the conditions that the applicant for

stay "should satisfy the court not only that he is but also

was at the commencement of the proceedings ready and willing

to do everything necessary for the proper conduct of the

arbitration". It is thus quite clear on the authorities and

from the terms of sec. 34 that the readiness and willingness

must exist not only when an application for stay is made but

also at the commencement of the legal proceedings. From the

conduct of the first defendant in either of these two suits

the trial court found that they were not ready and willing

to go to arbitration at the time when the suits were

instituted. This is a finding of fact and we are afraid

there was no valid ground in either case for interference

with this finding. From the letters written on behalf of

the Corporation to the agents of the first defendant in the

suit giving rise to Civil Appeal 1519 of 1974 urging them to

take steps for referring the dispute to arbitration and the

evasive replies sent to these letters, the trial court came

to the conclusion that the first defendant was not ready and

willing to go to arbitration at the time when the suit was

instituted. We do not think this was an arbitrary or

perverse conclusion as the High Court characterized it. In

our opinion the High Court went wrong in disregarding

relevant and significant material, namely, the

correspondence that passed between the parties, as

"innocuous" and erred in disturbing the finding of fact for

no valid reason.

As regards the suit which gives rise to Civil Appeal 1518 of

1974, the trial court repelled the contention that as the

Corporation's proposal to refer the dispute to the sole

arbitration of the Director General

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(1) [1955] 1 S.C.R. 862.

152

Shipping, Bombay was different from what clause 42 of the

Charter Party provided, the defendant was justified in not

replying to the telegrams or doing anything for the proper

conduct of the arbitration. The argument that the trial

court rejected found favour with the High Court. That the

Corporation's proposal was a deviation from clause 42 of the

Charter-Party was hardly a valid excuse for the first defen-

dant to remain silent and inactive. If the first defendant

were ready and willing to go to arbitration, one would have

expected them, as the trial court observed, to reply to the

telegrams saying that they were not agreeable to any

departure from the terms of clause 42 and could insist on

compliance with that clause. But they did not reply to the

telegrams or do anything for reference of the dispute to

arbitration as provided in clause 42. Silence and inaction

on their part may in these circumstances very well justify

the inference that they were not ready or willing to go to

arbitration. The finding of the High Court that the trial

court had exercised its discretion not judicially cannot

therefore be supported. And in this case really no question

arises as to exercise of discretion. Granting stay under

sec. 34 is of course discretionary as the section indicates

but the occasion for the exercise of discretion does not

arise unless all the conditions stated in the section are

fulfilled. In this case the trial court found as a fact

that the first defendant was not ready and willing to go to

arbitration when the suit was instituted and we have held

that the finding is not perverse or arbitrary; one of the

requirements of the section not having been fulfilled, sec.

34 could not be invoked in this case.

Mr. Desai for the respondent relied on certain observations

of this Court in Michael Colodetz & Ors. v. Serajuddin and

Company(1) in support of the proposition that the Court

should not allow a party to an arbitration agreement to

proceed with the suit in "breach of the solemn obligation to

seek resort to the tribunal selected by him". It is however

made clear in that decision that these observations are sub-

ject to the terms of sec. 34, one of which is that the other

party to the agreement must remain "ready and willing to do

all things necessary for the proper conduct of the

arbitration". The legal position is explained in that

decision as follows

"The Court ordinarily requires the parties to

resort for resolving disputes arising under a

contract to the tribunal contemplated by them

at the time of the contract. That is not

because the Court regards itself bound to

abdicate its jurisdiction in respect of

disputes within its cognizance, it merely

seeks to promote the sanctity of contracts,

and for that purpose stays the suit. The

jurisdiction of the Court to try the suit

remains undisputed : but the discretion of the

court is on grounds of equity

interposed......... It is for the court,

having regard to all the circumstances, to

arrive at a conclusion whether sufficient

reasons are made out for refusing to grant

stay. Whether the circumstances in a given

case make out sufficient reasons for refusing

to stay a suit is -essentially a question of

fact."

(1) [1964] 1 S.C.R. 19.

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153

For the reasons stated above we think that the, appeals must

succeed. Accordingly we allow both the appeals and set

aside the order of the High Court and restore that of the

trial court in each of these two cases. In Civil Appeal

1519 of 1974 the appellant will be entitled to its costs in

this Court and in the High Court against the contesting

respondent. In Civil Appeal 1518 of 1974, considering all

aspects, we direct the parties to bear their own costs

throughout.

V. P. S. Appeals allowed.

154