JUDGMENT
C.P. Sen, J.
1. This is an appeal under Section 39(1)(iv) of the Arbitration Act, 1940 against the order of the District Judge staying the suit under Section 34 of the Act.
2. The plaintiff/appellant is a Company incorporated under the Companies Act, 1956. The plaintiff had appointed the defendant/ respondent a registered firm as one of its distributors at Torwa in Bilaspur district for
sale of fertilizers, viz., Calcium Ammonium Nitrate and Ammonium Sulphate, both controlled items, manufactured by the plaintiff. The terms and conditions for the supply of fertilisers, are incorporated in the agreement D7- 30-3-1972, which was accepted by the defendant on 18-4-1972. Under Clause 4(1) of the agreement the price for ammonium sulphate was Rs. 4357- per ton f.o.r. Bhilai, but this price was subject to revision and the price ruling on the date of despatch shall apply. Under Clause 21, all disputes and differences between the parties arising out of the agreement should be decided by arbitration and either of the party shall forthwith give notice in writing about the dispute. The defendant placed an order on 22-2-74 for supply of 1320 tons of ammonium sulphate. The plaintiff issued a sale order D/-14-3-74 agreeing to supply ammonium sulphate. As per the term of the sale order the date of delivery in case of rail delivery was the date of Railway Receipt and in all other cases the date of actual delivery. The defendant was also informed on 22-6-1974 that for delayed payment interest will be charged at the rate of 18 per cent per annum. The price of ammonium sulphate was revised from Rs. 535/- to Rs. 555/- on 17-4-1974 and to Rs. 890/- from 1-6-1974. The plaintiff despatched 220 tonnes of ammonium sulphate in 10 wagons on 2-6-1974 by Railway Receipts of even date, but since the Bhilai office of the plaintiff by that time had not received the revised price of ammonium sulphate, the plaintiff issued an invoice amounting to Rs. 1,26,150.20P at the rate of Rs. 555/- per ton. However, when the revised price list was received, it was intimated to all the distributors. The defendant’s representative came to Bhilai on 18-6-1974 to collect the Railway Receipts stating that the consignment has already been arrived at Bilaspur and unnecessary demurrage will be charged and handed over a bank draft for Rs. 1,26,150.20P. but gave a written undertaking that they would honour the supplementary invoice as per the revised price. The plaintiff, therefore, sent a supplementary invoice for Rs. 76,135.05P. being the difference in price between the revised price at Rs. 890/- per ton and the price charged in the earlier invoice which was at the rate of Rs. 555/- per ton, but the defendants failed to pay the same. The
plaintiff served a registered notice on 5/7-7-1976 for payment of the amount of Rs. 76,135.05 along with interest at the rate of 18 per cent per annum. The defendant sent a reply D/- 4-8-1976 denying his liability to pay the revised price saying that since the excise duty for the aforesaid consignment was paid by the plaintiff on 27/28-5-1974 and the despatch advices having been sent on those dates, the defendant is only liable to pay the old price of Rs. 555/- per ton. Therefore, the plaintiff filed the present suit on 13-5-1977 claiming Rs. 1,16,613.64p. for the balance price with interest at the rate of 18 per cent.
3. After receiving the summons, the defendant filed an application under Section 34 of the Arbitration Act on 8-8-1977 saying that there is dispute as to what was the price payable by the defendant, and, therefore, the dispute is covered under the arbitration clause of the agreement and the suit should be stayed, since the defendant is ready and willing to do all things necessary for the arbitration. By amendment the defendant further contended that though the price of ammonium sulphate was revised from 1-6-74, but since the excise duty on the consignment was paid by the plaintiff on 27/28-5-1974, the price prevailing on those dates and not the revised price is payable. The plaintiff in his reply opposed the application saying that these is no dispute as such because under the agreement, the agreed price is the price prevailing on the date of despatch, i.e., the date of the Railway Receipt. Here the Railway Receipts were issued on 2-6-1974 and as such the revised price will apply and there can be no dispute on this question. The defendant had agreed in writing to pay the revised price while taking the Railway Receipts from the plaintiff on 8-6-1974. The defendant has himself filed Civil Suit No. 18-B/76 in the Court of District Judge, Bilaspur for recovery of Rs. 32,307/- alleging that the price of calcium ammonium nitrate supplied to it could have been at the rate of Rs. 548/- per ton but actually recovery has been made at the revised rate of Rs. 1028/-per ton as per the revised price DA 1-6-1974. Therefore, the defendant himself has not relied on the arbitration clause and the defendant was also never ready and willing to abide by the arbitration clause. The questions raised by the defendants are not
based on the agreement and are against the terms and conditions incorporated therein and as such cannot be subject matter of arbitration. The learned District Judge held that since the defendant had at the outset in the suit filed an application for stay of the suit under Section 34 of the Arbitration Act, it has to be held that it is ready and willing to do all things for the arbitration. There is an arbitration clause in the agreement and the dispute here is regarding the receipt of goods and even regarding the quantity. For this purpose he relied on the statement of Govindram Agrawal (NA.W. 1). It may be mentioned that on the same day the District Judge decided an application under Section 34 of the Act in another Civil Suit No. 11-B/77 between the Steel Authority of India Ltd. v. Industrial and Allied Sales Pvt. Since the legal questions involved were similar, though the dispute raised in both the suits were different, the District Judge passed identical orders in both the cases. In fact, while disposing of the application under Section 34 of the Arbitration Act in the present case, he referred to the facts and evidence of the other case and both the orders are almost identical.
4, Under Section 34 of the Arbitration Act where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement for 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 proceeding; 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. Interpreting this section, the Supreme Court in Printers (Mysore) Pvt. Ltd. v. P. Joseph, AIR 1960 SC 1156 has held that the power to stay the legal proceedings under Section 34 is discretionary and it is ordinarily not open to the appellate Court to substitute its own
exercise of discretion for that of the trial Judge; but if it appears to the appellate court that in exercising its discretion the trial court has acted unreasonably or capriciously or has ignored relevant facts and has adopted an unjudicial approach then it would certainly be open to the appellate Court and in many cases it may be its duty to interfere with the trial court’s exercise of discretion. In cases falling under this clause the exercise of discretion by the trial court is in law wrongful and improper and that would certainly justify and call for interference from the appellate Court. The Supreme Court in Anderson Wright Ltd. v. Moran & Co., AIR 1955 SC 53 has held that in order that a stay may be granted under Section 34, it is necessary that the following conditions should be fulfilled: (1) The proceeding must have been commenced by a party to an arbitration agreement against any other party to the agreement; (2) The legal proceeding which is sought to be stayed must be in respect of a matter agreed to be referred; (3) The applicant for the stay must be a party to the legal proceeding and he must have taken no step in the proceeding after appearance. It is also necessary that he should satisfy the Court not only that 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; and (4) The Court must be satisfied that there is no sufficient reason why the matter should not be referred to an arbitration in accordance with the arbitration agreement. It has further been observed that under Section 34 for stay of the suit unless the applicant for stay succeeds in establishing that the respondent is a party to an arbitration agreement and that the subject matter of dispute in the suit is a matter coming within the scope of such agreement, it cannot possibly ask the court to order a stay of the proceedings under Section 34 of the Arbitration Act. The Supreme Court in A.M. Mair & Co. v. Gordhandas Sagarmull, AIR 1951 SC 9 has held that where a party has to have recourse to the contract to establish his case, it is a dispute under the contract. Again the Supreme Court in Gaya Electric Supply Co. v. State of Bihar, AIR 1953 SC 182 has held that where a party seeks to avoid the contract for reasons dehors it, the arbitration clause cannot be resorted to as it goes along with other terms of the contract. The Supreme,
Court in Alopi Prasad v. Union of India, AIR 1960 SC 588 has held that the Contract Act does not enable a party to a contract to ignore the express covenants thereof, and to claim payment of consideration for performance of the contract at rates different from the stipulated rates, on some vague plea of equity.
5. It is evident, in the present case, that the District Judge did not apply his mind and has ignored the case law on the subject, which was cited but not considered and has ignored material facts and passed an order by basing his decision on the facts recorded in another case. Therefore there was no application of mind and the order is arbitrary. Therefore, it is open to this Court in appeal to interfere with the discretion exercised by the trial Judge, since the discretion was not exercised judicially. There being express terms in the agreement that the price charged will be the price prevailing on the date of despatch and if it is by rail then the date of Railway Receipts. Admittedly, in the present case, the Railway Receipts are dt. 2-6-1974 and so the price prevailing on that date is payable by the defendant and not the price prevailing on the date of despatch advise nor the date of payment of excise duty on the consignment. The Supreme Court in Union of India v. B.C.S. & W. Mills, AIR 1967 SC 688 has held that refusal of a party to pay the agreed price in order to appropriate claim against opposite party under a distinct contract, is not a dispute arising under or in connection with the contract under which the liability sought to be enforced has arisen, the suit cannot be stayed under Section 34 of the Arbitration Act The only dispute raised in the application under Section 34 of the Act is that the defendant is not liable to pay the revised price of Rs. 890/- per ton from 1-6-1974 by taking a frivolous plea that the price prevailing when the despatch advise was issued will apply. Such plea is not available in terms of the agreement. Therefore this is not a dispute which can be raised under the arbitration clause. The defendant has failed to fulfill the essential condition before the order could be passed in his favour under Section 34. There is nothing to show that he is ready and willing to do all things necessary to the proper conduct of the arbitration. Under Clause 20 of
the agreement the defendnat was required to
raise a dispute forthwith. The defendant was handed over the Railway Receipts on 8-6-1974 after he gave a written undertaking that it will pay the balance amount as per the revised price and no such dispute was raised by the defendant at that time that the price prevailing on the date of despatch advise will be paid. The Supreme Court in State of Punjab v. Geeta Iron and Brass Works, AIR 1978 SC 1608 has held that one weighty factor obviously is to find out whether the party who invokes the arbitration clause has expressed his readiness to rely on it at the earliest stage. Therefore, the defendant having not raised a dispute at the earliest stage, is not entitled to invoke Section 34 of the Act. The present dispute was raised for the first time by the defendant in its reply dt. 4-8-1976 to the suit notice of the plaintiff, i.e. more than two years after the dispute had arisen. The suit was stayed by the District Judge on 25-3-1980. Although about six years have passed, yet the defendant has not given any notice to the plaintiff for referring the dispute to the arbitrator. The suit has been filed in the year 1977 and the transaction is of the year 1974. Under the circumstances, no useful purpose would be served by referring the dispute to arbitration, even if it is assumed that the dispute is covered under the arbitration clause. The Supreme Court in State of U. P. v. Janki Saran, AIR 1973 SC 2071 has held that keeping in view the long delay after the institution of the suit and the fact that the suit is for a very heavy amount by way of damages for breach of contract, it will, in our opinion, be more satisfactory on the whole to have the suit tried in a competent Court of law in the normal course rather than by lay arbitrator who is not bound either by the law of evidence or by the law of procedure.
6. Accordingly the appeal is allowed with costs. The order of the District Judge is set aside and the case is remitted back to him for disposal of the suit in accordance with law. Counsel’s fee as per schedule, if certified.