# Bristol Corporation v. Jolin Aird & Co. [19131 A.C. 241, referred

- **Citation:** [1966] Supp. 1 S.C.R. 215
- **Court:** Supreme Court of India
- **Decided:** 1966-04-20
- **Bench:** K. Subba Rao, V. Ramaswam!
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bristol-corporation-v-jolin-aird-co-19131-a-c-241-referred-3844
- **Pages:** 9

## Headnote

Indian Arbitration Act,
s. 34-Arbitration agreement-Parties
how far bound to have dispute decided by agreed arbitrator-One
of the parties filing suit-Court's discretion to stay such suit-Appellate Court's power to interfere with trial court's discretion under
s. 34.
The appellant society carried on business as public carriers on
the Kanpur-Delhi route. By an agreement
in 1954 they appointed the
respondents as their Managing Agents for a period of 3 years. But
much before the expiry of that period they terminated the agreement. Disputes arising between the parties were under the agreement, to be decided by arbitration as provided in the Co-operative
Societies Act II of 1912. According to the relevant provisions of the
said Act disputes were to be decided by the Registrar of Co-operative Societies or by an arbitrator or arbitrators appointed by him.
The respondents however filed a suit against the Society asking for
a declaration that the termination of the agreement by the society
was illegal and for a mandatory injunction restraining the society
from term.inati.ng the agreement. The Society thereupon filed an
application under s. 34 of the Indian Arbitration Act praying for a
stay of the aforesaid suit on the ground that the respondents had
agreed to arbitration as provided in the Co-operative Societies Act.
The trial Court stayed the suit but the appellate Court set aside the
trial Court's order and dismissed the application under s. 34.
The
High Court upheld the appellate Court's order whereupon, by special leave, the society appealed to this Court.
HELD: (i) The High Court rightly refused to stay the suit. It
rightly observed that it would be a difficult task for the arbitrator
to investigate as to which of the rules made under the Co-operative .
Societies Act are consistent with and which of those rules are not
consistent with the provisions of the Indian Arbitration Act.
The
suit, moreover, was filed as far back as 1954 and its stay would not
be in the interests of it~ speedy disposal. [219 G-220 BJ
(ii) It is, of course. the normal duty of the court to hold the
parties to the contract and to make them nresent their disputes to
the forum of their choice, but the strict or:mciple of sanctity of contract is subject to the discretion of the Court under s.
34 of the
Indi'an Arbitration Act. A party may be released from the bargain
if he can show that the selected arbitrator is likely to show bias or
there is sufficient reason to suspect' that he will act unfairly or that
he has been guilty of unreasonable conduct. [222 DJ
In the present case the respondent had alleged that the Registrar Co-operative Societies had approved the termination of the contract of Managing Agency with the plaintifT and the Registrar was
H
the Chairman of the Defendant-Society. In the circumstances the
High Court m_ust be hrld to hc:tve properly exercised it~ discretion
under s. 34 of the Indian Arbitration Act in not granting a s!Ay of
the proceedings in the suit. [222 EJ.
L/S5SCI-16
216
BcPREME COURT REPORTS
[1966] SUl'P, 8,C,R.
Bristol Corporation v. Jolin Aird & Co. [19131 A.C. 241, referred
A
to.
(iii) Ii it appears to the appellate Court that in exercising its
discretion the trial court has acted unreasonably or capriciously or
has ignored relevant facts then it would certainly be open to the
Appellate Court to intt>rfcre with the trial court's exercise o[ discretion, [222 HJ
B
Charles Osenton & Co. v. Johnston, [1942) A.C. 130, referred to.
CiVJL APPELLATE JURISDICTIOS: Civil Appeal No. 426 of
1964.
Appeal by special leave from the judgment and order dated
February 22. 1962 of the Punjab High Court (Circuit Bench) at
Delhi in Civil Revision No. 311-D of 1958.
S. P. Sinha and lnder Sen Sawhncy, for the appellant.
K. K. Jain and Bishambar Lal, for the respondent.

## Text

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UTTAR PRADESH CO-OPERATIVE FEDERATION LTD.
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v
MIS SUNDER BROTHERS OF DELHI
April 20, 1966
(K. SUBBA RAO AND V. RAMASWAM!, JJ.]
Indian Arbitration Act,
s. 34-Arbitration agreement-Parties
how far bound to have dispute decided by agreed arbitrator-One
of the parties filing suit-Court's discretion to stay such suit-Appellate Court's power to interfere with trial court's discretion under
s. 34.
The appellant society carried on business as public carriers on
the Kanpur-Delhi route. By an agreement
in 1954 they appointed the
respondents as their Managing Agents for a period of 3 years. But
much before the expiry of that period they terminated the agreement. Disputes arising between the parties were under the agreement, to be decided by arbitration as provided in the Co-operative
Societies Act II of 1912. According to the relevant provisions of the
said Act disputes were to be decided by the Registrar of Co-operative Societies or by an arbitrator or arbitrators appointed by him.
The respondents however filed a suit against the Society asking for
a declaration that the termination of the agreement by the society
was illegal and for a mandatory injunction restraining the society
from term.inati.ng the agreement. The Society thereupon filed an
application under s. 34 of the Indian Arbitration Act praying for a
stay of the aforesaid suit on the ground that the respondents had
agreed to arbitration as provided in the Co-operative Societies Act.
The trial Court stayed the suit but the appellate Court set aside the
trial Court's order and dismissed the application under s. 34.
The
High Court upheld the appellate Court's order whereupon, by special leave, the society appealed to this Court.
HELD: (i) The High Court rightly refused to stay the suit. It
rightly observed that it would be a difficult task for the arbitrator
to investigate as to which of the rules made under the Co-operative .
Societies Act are consistent with and which of those rules are not
consistent with the provisions of the Indian Arbitration Act.
The
suit, moreover, was filed as far back as 1954 and its stay would not
be in the interests of it~ speedy disposal. [219 G-220 BJ
(ii) It is, of course. the normal duty of the court to hold the
parties to the contract and to make them nresent their disputes to
the forum of their choice, but the strict or:mciple of sanctity of contract is subject to the discretion of the Court under s.
34 of the
Indi'an Arbitration Act. A party may be released from the bargain
if he can show that the selected arbitrator is likely to show bias or
there is sufficient reason to suspect' that he will act unfairly or that
he has been guilty of unreasonable conduct. [222 DJ
In the present case the respondent had alleged that the Registrar Co-operative Societies had approved the termination of the contract of Managing Agency with the plaintifT and the Registrar was
H
the Chairman of the Defendant-Society. In the circumstances the
High Court m_ust be hrld to hc:tve properly exercised it~ discretion
under s. 34 of the Indian Arbitration Act in not granting a s!Ay of
the proceedings in the suit. [222 EJ.
L/S5SCI-16
216
BcPREME COURT REPORTS
[1966] SUl'P, 8,C,R.
Bristol Corporation v. Jolin Aird & Co. [19131 A.C. 241, referred
A
to.
(iii) Ii it appears to the appellate Court that in exercising its
discretion the trial court has acted unreasonably or capriciously or
has ignored relevant facts then it would certainly be open to the
Appellate Court to intt>rfcre with the trial court's exercise o[ discretion, [222 HJ
B
Charles Osenton & Co. v. Johnston, [1942) A.C. 130, referred to.
CiVJL APPELLATE JURISDICTIOS: Civil Appeal No. 426 of
1964.
Appeal by special leave from the judgment and order dated
February 22. 1962 of the Punjab High Court (Circuit Bench) at
Delhi in Civil Revision No. 311-D of 1958.
S. P. Sinha and lnder Sen Sawhncy, for the appellant.
K. K. Jain and Bishambar Lal, for the respondent.
The Judgment of the Court was delivered by
Rallllllwami, J. This appeal is brought, by special leave, from
c
the judgment of the Punjab High Court dated February 22,
1962 in Civil Revision No. 33i·D of 1958 whereby the
High
D
Court upheld and confim1ed the judgment of the Appellate Court
and set aside the judgment of the trial court staying proceedings
in the suit.
The Uttar Pradesh Co-operative Federation Limited (hereinafter referred to as the 'Society') was registered under the Cooperative Societies Act No. II of 1912 at Lucknow and was carryE
ing on the business of plying public carriers
on
Kanpur-Delhi
route. The Society had been granted, for this purpose, permits by
the Uttar Pradesh Government and
Delhi Administration for
seven vehicles. In March, 1954. the Society entered into an agreement with the plaintiffs-MI s Sunder Brothers-through Bimal
Kumar Jain and Ohan Kumar Jain by which they were appointed
as Managing Agents for carrying on the business as public carF
riers. The terms of the Managing Agency agreement were embodied
in a letter dated March 2, 1954 written by the Secretary of the
Society. Clause 28 of the agreement rc.1ds as follows:-
"That in the event of there being any dispute regarding
the terms and conditions of this agreement and your appointment hereunder as Managing Agents of the aforesaid business
or any matter arising from and relating thereto or the subject
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matter thereof. such dispute shall be decided by arbitration
as provided under Co-operative Societies Act II of 1912 and
you undertake and agree to be bound by the provisions for
arbitration in the said Act".
The agreement was to last for a period of three years but on July B
5, 1954 the Society terminated the agreement by its letter dated
July 5, 1954. The plaintiffs therefore brought a suit on August
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COOP. FEDERATION v SUNDER BROS. (Ramaswaini, J.)
217
18, 1954 in the Court of the Subordinate Judge, First Class, Delhi
praying for a declaration that the termination of the Managing
Agency agreement by the Society was illegal and the plaintiffs
were entitled to continue the business of Managing Agents in
accordance with the terms and conditions of the agreement. The
plaintiffs prayed for a mandatory injunction restraining the defendant-Society from terminating the agreement. The Society made
an application under s. 34 of the Indian Arbitration Act, 1940
before the Subordinate Judge, Delhi, for an order for staying the
suit. It was claimed by the Society that the suit was not maintainable because under s. 51 of the Co-operative Societies Act the
dispute was to be adjudicated upon by the Registrar of Co-operative Societies. In the alternative it was alleged that by agreement
between the parties the dispute was to be referred to arbitrati'on
in accordance with the Co-operative Societies Act and consequently proceedings should be stayed. The trial court stayed the
proceedings but on the appeal of the plaintiffs the order of the
trial court was set aside and the application of the Society under
s. 34 of the Indian Arbitration Act was dismissed. The Society
moved the Punjab High Court in revision but the revision application was dismissed and the order of the lower appellate court
was confirmed.
It is necessary at this stage to set out the relevant provisions
of the Indian Arbitration Act (Act JO of 1940). Section 34 of this
Act states:
"34. 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".
Section 46 provides as follows:
"46. The provisions of this Act, except sub-section (1) of
H
section 6 and sections 7, 12, 36 and 37, shall apply to
every arbitration under any other enactment for the time
being in force, as if the arbitration were pursuant to an
L/S5SCI-16(nJ
\
218
SUPREllE COURT REPORTS
[1966] SUPP. s.c.R.
arbitration agreement as if that other enactment were an A
.irbitration agreement, except in so far as this Act is in·
consistent with that other enactment or with any rules
made thereunder".
Section 47 reads as follows:
"47. Subject to the provisions of section 46, and save in so
far as is otherwise provided by any law for the time being
in force, the provisions of this
Act shall apply to all
arbitrations and to all proceedings thereunder:
Provided that an arbitration award otherwise obtained
may with the consent of ail the parties
interested
be taken
into
consideration as a compromise or
adjustment of a suit by any Court before which the
suit is pending".
There was some controversy in the lower courts as to whether
the arbitration under cl. 28 of the agreement was
a
statutory
arbitration and whether s. 46 of the Indian Arbitration Act was
applicable to the case. It was argued by Mr. Sinha on behalf of
the appellant-Society that no statutory arbitration is created by
cl. 28 of the agreement but the parties had merely agreed to act
in accordance with the provisions of the Co-operative Societies
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Act (Act II of 1912) and the Rules made thereunder. It was contended that the parties had merely incorporated
the
statutory
provisions by reference in their agreement and s. 47 of the Indian
Arbitration Act will. therefore, be applicable to the case.
This
legal position was not controverted by Mr. K. K. Jain appearing
E
on behalf of the respondent. The only question in debate was
whether the lower court rightly exercised their jurisdiction under
s. 34 of the Indian Arbitration Act in not granting the stay of the
proce~ings of the suit.
If the arbitration agreement is not to be treated as a statutory arbitration under s. 46 of the Arbitration Act but an arbitration agreement under s. 47 of the Act, then the procedure to be
F
followed for the arbitration under that agreement
will
be that
provided under the Co-operative Societies Act and the Rules
framed thereunder. Under s. 47 of the Indian Arbitration Act the
arbitration will be governed only by such rules of the Co-operative
Societies Act and rules framed thereunder as arc not inconsistent
with the provisions of the Indian Arbitration Act. In this connection it is necessary to refer to Rules 115, 116 and 117 of tile
Co-operative Societies Rules framed under s. 43 of the Co-operative Societies Act. Ruic 115 states as follows:
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"Any
dispute
touching
the
business
of
a
registered
society
(i)
between
members or past members of a
society or persons claiming through a member or past
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member. (iil or between a member or a past member or
persons so claiming and the society or its commiuee or
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COOP. FEDERATION v. SUNDER BROS, (Ramaswami, J.)
219
any officer of the society, (iii) between the society or its
committee and any officer of the society, and (iv) between two or more registered societies, shall be decided
either by the Registrar or by arbitration and shall for
that purpose be referred in writing to the Registrar".
Rule 116 provides :
"The Registrar on receipt of a reference shall either decide
the dispute himself, or refer it for decision to an arbitrator or to two joint arbitrators appointed by him or to
three arbitra.tors, of whom one shall be nominated by
each of the parties to the dispute and the third by the
Registrar who shall also appoint one of the arbitrators
to act as chairman".
Rule 117 states:
"In case it is decided to appoint three arbitrators-
(i) The Registrar shall issue a notice calling on each ot
the parties to nominate one person as its nominee
within 15 days of the receipt of the notice.
(ii) if a party consists of more than one person, such persons shall jointly make only one nomination.
(iii) if more than one person is nominated by a party the
Registrar shall appoint either one of the nominees or
some other person of his own choice as the nominee
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of that party,
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(iv) if a party fails to nominate an arbitrator within the
appointed time or if its nomination is not valid the
Registrar may himself make the nomination,
(v) if one of the arbitrators fails to attend or refuses to
work as an arbitrator, the remaining arbitrators may
decide the dispute. If two of the arbitrators fail to
attend or refuse to work as arbitrators and the claim
is not admitted the remaining arbitrator shall refer the
case to the Registrar who may authorise him to give
an award or appoint one or more arbitrators to proceed with the reference or he may decide the case
himself".
It has been observed by the High Court that it would be a difficult
task for the arbitrator to investigate as to which of the rules made
under the Co-operative Societies Act are consistent with and which
of those rules are not consistent with the provisions of the Indian
Arbitration Act and therefore it was, a fit case in which discretion of the court under s. 3·4 of the Indian Arbitration Act should
be exercised in not staying the proceedings of the suit. In our
opinion, the reasoning of the High Court has much substance.
220
St:PREME COt:RT REPORTS
(1966] SUPP. B.C.R.
There is also another reason why there should not be a stay
A
of the proceedings under s. 34 of the Indian Arbitration Act. The
suit was filed in 1954 and, though 12 years have elapsed, nothing
has been done in the suit and it will not be in the interest of
speedy disposal of the suit between the parties if the proceedings
in the suit are further stayed and the parties are referred to arbitration.
There is also another ground why the proceedings in the suit
should not be stayed in the present case. If Rules 115 and l 16 of
the Co-operative Societies Rules are applicable then the reference
B
of the dispute has to be made to the Registrar of the Co-operative
Societies who may either decide the dispute himself or refer the o
dispute to an arbitrator or two joint arbitrators appointed by him
or to three arbitrator" of whom one shall be nominated by each
of the parties to the dispute and the third by the Registrar who
shall also appoint one of the arbitrators to act as Chairman. It is alleg.
ed by the respondent that the Registrar of Co-operative Societies
is ex-officio President of the Society "nd it was with his approval
that the agreement in dispute was terminated. It was also pointed
out that the Registrar was the chief controlling and supervising
officer of the Society under its bye-Jaws. It was submitted for the
respondent that the Registrar may not.
therefore. act fairly in
the matter and it is improper that he should be an arbitrator in
the dispute between the parties. In our opinion, there is much
validity in this argument. The legal position is that an order of
stay of suit under s. 34 of the Indian Arbitration Act will not be
granted if it can be shown that there is good i,'Tound for apprcheading that the arbitrator will not act fairly in the matter or that it
is for some reason improper that he should arbitrate in the dispute between the parties. It is. of course, the normal duty of the
Court to hold the parties to the contract and to make them present their disputes to the forum of their choice but an order to
stay the legal proceedings in a Court of law will not be granted
if it is shown that there is good ground for apprehending that the
arbitrator will not act fairly in the matter or that it is for some
reason improper that he should arbitrate in the dispute. Reference
may be made, in this connection, to the decision of the House of
Lords in Bristol Corporatio11 v. John Aird & Co.('). This case
was concerned with an application for stay of proceedings under
s. 4 of the English Arbitration Act which is similar to s. 34 of the
Indian Arbitration Act. Upon the settlement of the final account
there arose a bona fide dispute of a substantial character between
the contractor and tho engineer. who was the arbitrator under
the contract. involving a probable conflict of evidence between
them. The House of Lords
held, affirming the decision of the
- ------·---
(') [1013] A,C. 24t.
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COOP. FEDERATION v. SUNDER BROS. (Ramasuami, J.)
221
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Court of appeal, that the fact that the engineer, without any fault of
his own, must necessarily be placed in the position of a Judge and
a witness is a sufficient reason why the matter should not be referred in accordance with the contract. At pp. 247-248 of the
report Lord Atkinson stated as follows:
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"Whether it be wise or un)¥ise, prudent or the contrary, he
has stipulated that a person who is a servant of the person with whom he con tracts shall be the judge to decide
upon matters upon which necessarily that arbitrator has
himself formed opinions. But though the contractor is
bound by that contract, still he has a right to demand
that, notwithstanding
those
pre-formed views of the
engineer, that gentleman shall listen to argument and
determine the matter submitted to him as fairly as he
can as an honest man; and if it be shown in fact that
there is any reasonable prospect that he will be so biased as to be likely not to decide fairly upon those matters,
then the contractor is allowed to escape from his bargain and to have the matters in dispute tried by one of
the ordinary tribunals of the land. But I think he has
more than that right. If, without any fault of his own,
the engineer has put himself in such a position that it
is not fitting or decorous or proper that he should act
as arbitrator in any one or more of those disputes, the
contractor has the right to appeal to a Court of law and
they are entitled to say, in answer to an application to
the Court to exercise the discretion which the 4th section
of the Arbitration Act vests in them, "We are not satisfied that there is not some reason for not submitting
these questions to the arbitrator". In the present case
the question is, has that taken place"?
Lord Moulton after tracing the growth of the law of arbitration
made the following observations in his speech:
"But, My Lords, it must be remembered that these arbitration
clauses must be taken to have been inserted with due
regard to the existing Jaw of the land, and the law of the
land applicable to them is, as I have said, that it does not
prevent the parties coming to the Court, but only gives
to the Court the power to refuse its assistance in proper
cases. Therefore to say that if we refuse to stay an action
we are not carrying out the bargain between the parties
does not fairly describe the position. We are carrying out
the bargain between the parties, because that bargain to
substitute for the Courts of the land a domestic tribunal
was a bargain into which was written, by reason of the
existing legislation, the condition that it should only be
enforced if the Court thought it a proper case for its being
so enforced".
222
SUPREME COUR1' REPORTS
[1966] Sl'l'P. S.C,R,
Lord, Parker, .after pointing out that s. 4 of the Arbitration Act
A
gave a discretionary power to the Court to be exercised after it was
satisfied that there was no sufficient reason why the matter should
not be referred in accordance with the submission, expressed the
fol!O\Ving viC\\S:
"In making up its mind on this point the Court must of course B
give due consideration to the contract between the parties,
but it should. I think, always be remembered that the
parties may have agreed to the submission precisely because of the discretionary pow~r vested in the Court under
the Arbitration Act They may, very well, for instance,
have said to themselves, 'If in
any
particular case it
would be unfair to allow the arbitration we arc agreeing c
to proceed we shall have the protection of the Court".
It is manifest that the strict principle of sanctity of contract is subject to the discretion of the Court under s. 34 of the Indian Arbitration Act. for there must be read in every such agreement an implied
term or condition that it would he enforceable only if the Court,
having due regard to the other surrounding circumstances. thinks
fit in its discretion to enforce it. It is obvious that a party may he
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released from the bargain if he can show that the selected arbitrator is likely to show bias or by sufficient reason to suspect that he
will act unfairly or that he has been guilty of continued unreasonable conduct. As we have already stated. the respondent has alleged in the present case that the Registrar, Co-operati1·e Societies
has approved the termination of the contract of Mana&ing A~ency
with the plaintiff and the Registrar was the chairman of the defenE
dant-Society. We are accordingly
of the opinion that the High
Court properly exercised its discretion under s. 34 of the Indian
Arbitration Act in not granting a stay of the proceedings in the
suit.
It is well-establishoo that where the discretion vested in the
Court under s. 34 of the Indian Arbitration Act has been exercisF
ed by the lower court the appellate court should be slow to interfere with the exercise of that discretion. In dealing with the matter
raised before it at the appellate stage the appellate court would
normally not be justified in interfering with the exercise of the discretion under appeal solely on the ground that if it had considered the matter at the trial stage it may have come to a contrary
conclusion. If the discretion has been exercised by the trial court
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reasonably and in a judicial manner the fact that the appellate
court would have taken a different view may not justify interference with the trial court's exercise of (bcretion. As is often said.
it is ordinarily not open to the appel13te court to substitute its own
exercise of discretion for that of the trial Judge; but if it appears
to the appellate court that in excrcisinf( its discretion the trial
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court has acted unreasnnably or capriciously or has ignored relevant facts then it would certainly be open to the appellate court
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COOP. FEDERATION v. SUNDER RROS. (Ramaswami, J.)
223
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to interfere with the trial court's exercise of discretion. This principle is well-established; but. as has been observed by Viscount
Simon, L. C., in Charles Osen/on & Co. v. Johnston('):
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"The law as to the reversal by a court of appeal of an order
made by a Judge below in the exercise of his discretion
is well-established, and any difficulty that arises is due
only to the application of well-settled principles in an
individual case".
For these reasons we hold that the appellan~ has made out
no case for our interference with the order of the High Court refusing stay of the proceedings in the suit under s. 34 of the Indian
c
Arbitration Act. The appeal accordingly fails and is dismissed
with costs.
Appeal dismissed .