# MICHAEL GOLODETZ AND OTHERS v. SERAJUDDIN & COMPANY

- **Citation:** [1964] 1 S.C.R. 19
- **Court:** Supreme Court of India
- **Decided:** 1964
- **Bench:** P. B. Gajendragadkar, K. N. Wanchoo, K. C. Das Gupta, J. C. Shah
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/michael-golodetz-and-others-v-serajuddin-company-2884
- **Pages:** 10

## Headnote

19
Arbitration-Contract to supply goods between an Indian
Firm and a Foreign Firm-Arbitration clause to refer disputes to
a foreign Tribunal-The foreign Firm refers the dispu.te to a
foreign Tribunal-The Indian Firm files a suit in the High
Court-Cancellati·m of the Contract-Injunction to restrain the
other party from proceeding with arbitration-Petition in the
High Court to stay suit-power of court to entertain the SuitExercist of discretion-Arbitration Act, 1940 (X of 1940) s. 34.
The appellants are a firm carrying on business in the
United States of America.
The respondents are an Indian
Firm. These two firms entered into a contract in writing by
which t.1e appellant agreed to buy certain goods from the
respondents.
An arbitration
clause
in
the
contract
provided that disputes arising out of the contract are to be
settled by arbitration in New York according to the rules of the
American Arbitration ~.<\.ssociation.
Disputes having arisen the
appellants referred them to arbitr4tion. The respondents there·
upon filed a suit on the Original side of the Calcutta High Court
for the cancellation of the contract and for the issue of a per·
petual injunction restraining the appellants from taking steps in
purported enforcement of the contract.
The appellants then
filed a petition before the same High Court for the stay of that
suit under s. 34 of the Arbitration Act, 1940. This petition was
heard by a Single Judge who held that the remedy of the party
aggrieved by the manner in which the proceedings are conducted
by foreign Tribunal was to c mtest the proceedings according to
the law applica~>le to the tribunal and that the respondents have
not shown sufficient reasons for not granting stay.
In appeal
under the Leite'• Patent the order was set aside and the appellants appealed with special leave.
The main question before this Court was whether the
Court of first instance has or has not exercised its discretion
properly in granting stay.
Held, that a clause
in~ a commercial contract between
merchants residing in different countries to go to arbitration is
1962
Decer:1her, 1~.
196t
Mi<llMI Gol°'61<
v.
S1rojulkfi11 ~ Co.
SINh, J.
20
SUPREME COURT REPORTS [1964] VOL.
an integral part of the contract on the faith of which the cont;
ract is entered into, hut that docs not preclude the court having
territorial jurisdiction from entertaining a suit at the instance
of one of the parties to the contract even in breach of the cove•
nant. 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 cnntract.
The court
may in such cases refuse its assistance in a proper crue when the
party seeking it i• without sufficient reason resiling from the
bargain. It is for the court having regard to all the circum·
stances to arrive at a conclusion whether sufficient reasons are
made out for refusing to grant stay. Whether the circumstan·
ces in a !{iven case make out sufficient reasr,ns for
refu~ing to
~tay a suit is es:.tntially a qu~tion of fa-:.t.
In the present ca.<e all the evidence of the parties was in
India, and the current restrictions imposed by the Government
of India on the availability of foreign exchange, made it
impos~ible for the respondents to carry their witnesses to New
York for examination before the arbitrator.
The proceeding
before the arbitratot would in eff•ct be ex parft.
The High
Court was thcrcfl>rc right in its conclusion, on a review of the
b~lance of convenience, that stay should not be granted.
Cn·1L APPELI.An: jURI8IJICTION : Civil Appeal
No. 493 of l!l60.
Appeal by special leave from the judgment and
order dated April 29, 1959, of the Calcutta High
Court in
Appeal from Original Order No. 177
of 1958.
S. T. Desai, D. N. :llnH1erjee and B. N. Ghosh.
for the appellants.
C. K. D1iphtary, Solicitor Grnernl
8. K.
Kapur
and P. C.
Ch«tte1jee,
respondent.
of lndicl,
for
the
1962. December 12.
The Judgment of the
Court was delivered by

## Text

•
ll
-t
j
1 S.C.R.
SUPREME COURT REPORTS
MICHAEL GOLODETZ AND OTHERS
v.
SERAJUDDIN & COMPANY
(P. B. GAJENDRAGADKAR, K. N. WANCHOO,
K. C. DAS GUPTA and J. C. SHAH, JJ.)
19
Arbitration-Contract to supply goods between an Indian
Firm and a Foreign Firm-Arbitration clause to refer disputes to
a foreign Tribunal-The foreign Firm refers the dispu.te to a
foreign Tribunal-The Indian Firm files a suit in the High
Court-Cancellati·m of the Contract-Injunction to restrain the
other party from proceeding with arbitration-Petition in the
High Court to stay suit-power of court to entertain the SuitExercist of discretion-Arbitration Act, 1940 (X of 1940) s. 34.
The appellants are a firm carrying on business in the
United States of America.
The respondents are an Indian
Firm. These two firms entered into a contract in writing by
which t.1e appellant agreed to buy certain goods from the
respondents.
An arbitration
clause
in
the
contract
provided that disputes arising out of the contract are to be
settled by arbitration in New York according to the rules of the
American Arbitration ~.<\.ssociation.
Disputes having arisen the
appellants referred them to arbitr4tion. The respondents there·
upon filed a suit on the Original side of the Calcutta High Court
for the cancellation of the contract and for the issue of a per·
petual injunction restraining the appellants from taking steps in
purported enforcement of the contract.
The appellants then
filed a petition before the same High Court for the stay of that
suit under s. 34 of the Arbitration Act, 1940. This petition was
heard by a Single Judge who held that the remedy of the party
aggrieved by the manner in which the proceedings are conducted
by foreign Tribunal was to c mtest the proceedings according to
the law applica~>le to the tribunal and that the respondents have
not shown sufficient reasons for not granting stay.
In appeal
under the Leite'• Patent the order was set aside and the appellants appealed with special leave.
The main question before this Court was whether the
Court of first instance has or has not exercised its discretion
properly in granting stay.
Held, that a clause
in~ a commercial contract between
merchants residing in different countries to go to arbitration is
1962
Decer:1her, 1~.
196t
Mi<llMI Gol°'61<
v.
S1rojulkfi11 ~ Co.
SINh, J.
20
SUPREME COURT REPORTS [1964] VOL.
an integral part of the contract on the faith of which the cont;
ract is entered into, hut that docs not preclude the court having
territorial jurisdiction from entertaining a suit at the instance
of one of the parties to the contract even in breach of the cove•
nant. 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 cnntract.
The court
may in such cases refuse its assistance in a proper crue when the
party seeking it i• without sufficient reason resiling from the
bargain. It is for the court having regard to all the circum·
stances to arrive at a conclusion whether sufficient reasons are
made out for refusing to grant stay. Whether the circumstan·
ces in a !{iven case make out sufficient reasr,ns for
refu~ing to
~tay a suit is es:.tntially a qu~tion of fa-:.t.
In the present ca.<e all the evidence of the parties was in
India, and the current restrictions imposed by the Government
of India on the availability of foreign exchange, made it
impos~ible for the respondents to carry their witnesses to New
York for examination before the arbitrator.
The proceeding
before the arbitratot would in eff•ct be ex parft.
The High
Court was thcrcfl>rc right in its conclusion, on a review of the
b~lance of convenience, that stay should not be granted.
Cn·1L APPELI.An: jURI8IJICTION : Civil Appeal
No. 493 of l!l60.
Appeal by special leave from the judgment and
order dated April 29, 1959, of the Calcutta High
Court in
Appeal from Original Order No. 177
of 1958.
S. T. Desai, D. N. :llnH1erjee and B. N. Ghosh.
for the appellants.
C. K. D1iphtary, Solicitor Grnernl
8. K.
Kapur
and P. C.
Ch«tte1jee,
respondent.
of lndicl,
for
the
1962. December 12.
The Judgment of the
Court was delivered by
SnAH,J .-The appellants are a firm carrying on
business as importers in the name and style of ".M.
•
'
.,
1 S.C.R.
SUPREME COURT REPORTS
21
Golodetz & Company" at 120, Wall Street, New
York in the United States of America. The respondents are a firm carrying on business, among others
as exporters of manganese ore and their principal
office of business is at Bentinck Street in the town of
Calcutta. By a contract in writing dated July 5,
1955 the respondents agreed to sell and the appellants
agreed to buy 25,000 tons of manganese ore on the
terms and conditions set out therein. The contract
contained the following arbitration clause :
"Arbitration : Any dispute arising out of the
contract is to be settled by arbitration in New
York according to the rules of the American
Arbitration Association."
B.etween September 19,j6 and August 11!57 the respondents supplied 54 78 tons oi manganese
ore.
Disputes havmg arisen between the parties about the
liability of the respondents to ship the balance of the
goods not delivered, the appellants referred them on·
or about January 15, 1958 to the arbitration of the
American Arbitration
Association and
claimed
compensation on the plea that the respondents had
unlawfully made default in shipping the balance of
the goods agreed to be sold.
On February 2, 1958
the respondents commenced an action on the original
side of the High Court of Calcutta claiming a decree
that the written contract dated July 5, l!J55 be
adjudged void and delivered up and cancelled, that
a perpetual injunction be issued restraining the appellants, their servants and agents from taking steps
in purported enforcement of the said contract and
that a declaration (if necessary) be made that the
said contract stands discharged and that the parties
have no rights and obligations thereunder.
It was
the case of the respondents that the appellants had
accepted manganese ore shipped till August 1957 in
full satisfaction of their liability and that the contract
was
discharged and
the rights and liabilities
1962
Michael Golod1rz
v.
S1rty'uddin & Ca.
SJinh, J.
196:1
Mfrlwl Galodrt<
••
s,, aj•ddilo & c •.
Sholl, J.
22
SUPREME COURT REPORTS [1964] VOL.
of the parties thereunder came to an end.
In
the alternative the respondents pleaded that the
appellants had repudiated the contract or had commi·
tted breaches thereof and on that account also the
contract stood discharged or had become void or
voidable at their option and that they had avoided
the same.
In the further alternative they pleaded
that the contract had become impossible of further
performance and that the same stood frustrated or
discharged and they were exempted from further
performance thereof.
The appellants thereupon
petitioned the
High Court of Calcutta for an order
that the proceedings in suit Xo. 194 of 1958 commen·
ced by the respondents be stayed by an order under
s. 34 of.the Arbitration Act X of !!HO. and that an
injunction be issued restraining the respondents, their
agents and servants from proceeding with the hearing
of the suit.
Ray, J, who heard the petition held
that to the agreement to submit the disputes to arbitration to a foreign arbitral body s. 34 of the Indian
Arbitration Act, I !J.!0, applied that the remedy of
the party aggrieved by the manner in which the
proceedings are conducted, or by the award was to
contest the arbitrati<m proceeding and the award in
the foreign tribunal, accoroing to the law applicable
thereto, and that there was no sufficient reason for
not staying the action filed in breach of the agree·
ment to refer the disputes arising under the contract
to arbitrati•in.
In appeal under the Letters Patent
against the order, the High Court held that the Court
of first instance had not exercised its discretion pro·
perly for it had failed to take into consideration
certain important circumstances emerging from the
evidence, viz. that all the evidence regardmg the con·
tract and the disputes was in India, that there were
on account of the restrictions imposed by the Govern·
ment oflndia special difficulties in securing foreign
exchange for producing evidcucc before a foreign
arbitration tribunal, that it would be impossible for
the respondents to produce their evidence and tbere·
..
I S.C.R.
SUPREME COURT REPORTS
23
fore the foreign arbitration tribunal "would not be
a safe and convenient forum for a just and proper
decision of the disputes between the parties." The
learned Judges also observed that it was conceded by
the Advocate General appearing on behalf of the
appellants that the entire matter would be governed
by the Indian laws, the Indian Arbitration Act and
the Indian Contract Act and on that account also the
discretion of the Court to refuse to stay the suit
should be exercised. The High Court accordingly
reversed the judgment of Ray, J., . and vaca'ted the
order passed by him. Against that order, with
special leave, this appeal is preferred.
We will assume for the purpose of this appeal
that s. 34 of the Arbitration Act, 1940 invests a
Court in India with authority to stay a legal proceeding commenced by a party to an arbitration agreement against any other party thereto in respect of
any matter agreed to be referred, even when the
agreement is to submit it to a foreign arbitration
tribunal. Where a party to an arbitration agreement
commences an action for determination of a matter
agreed to be referred under an arbitration agreement
the Court normally favours stay of the action leaving
the plaintiff to resort to the tribunal chosen by the
parties for adjudication. The Court in such a case
is unwilling to countenance, unless there are
sufficient reasons, breach of the solemn obligation
to seek resort to the tribunal selected by him, if the
other party thereto still remains ready and willing to
do all things necessary for the proper conduct of the
arbitration:
This rule applies to arbitrations by
tribunals, foreign as well as domestic. The power
enunciated by s. 34 of the Arbitration Act is inherent
in the Court : the Court insists, unless sufficient
reason to the contrary is made out, upon compelling
the parties to abide by the entire bargain, for not to
do so would be to allow a party to the contract to
approbate and reprobate, and this consideration may
1962
Micliael Go/o,J,tc
v.
S"q/uddin « Co.
.~hoh. J.
1962
MiehMI 1 ;olotftl<:
••
Str·!ftuldi• & Co.
.~halt. J.
24
SUPREME COURT REPORTS [1!164] VOL.
be stronger in cas<-s where there is an agreement to
submit the dispute arising under the contract to a
foreign arbitral tribunal.
A clause in a commercial
transaction between merchants residing in different
coun\ries to go to arbitration is an integral part of
the transaction, on the faith of which the contract is
entered into, but that docs not preclude the Court
having territorial jurisdiction from entertaining a suit
at the instance of one of the parties to the contract,
even in breach of the covenant for arbitration.
The
Court may in such a case refuse its assistance in a
proper case, when the party 5eeking it is without
sufficient reason re;iling from the bargain. When
the Court refuses to stay the suit it declines to hold a
party to his bargain, b~cause of special reasons which
make it inequitable to do so.
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 th<lt purpose stays the Suit. The
jurisdiction of the Court tu try the suit remains undisputed : but the discretion of the Court is on grounds
of equity interposed. The Court is therefore not
obliged to grant stay merely because the parties have
even under a commercial contract agreed to submit
their dispute in a matter to an arbitration tribunal in
a foreign country. It is for the Court, having regard
to all the circumstances, to arrive at a conclusion
whether sufficient reasons arc made out for refusing
to grant stay.
Whether the circum~tances in a giveu
case make out sufficient reasons for refusing to stay
a suit is essentially a question of fact.
In the present case the circumstancei:, in our
judgment, arc somewhat peculiar. The appellants
in their petition for stay averred that the petition
was bona fide, and was filed at the earliest pos.1ible
•
•
•
I S.C.R.
SUPREME COURT REPORTS
25
opportunity, that the appellants were ready and
willing to do all things necessary for the proper conduct of the arbitration proceeding 'and there was no
sufficient reason why the matters in respect of which
the suit had been filed could not be referred to _arbitration in accordance with the arbitration agreement.
The respondents by their counter-affidavit contended
that the entire evidence regarding the subject-matter
of the suit and all the witnesses in connection therewith were in India and that no part of the evidence
regarding any of the aforesaid matters was in New
York. They also submitted that the proper law
applicable to the contract dated July 5, 1955 was
the Indian law and that the Indian law of Contracts
would govern the rights and obligations of the parties.
They also contended that the suit raised difficult
questions of law applicable to the contract, and on
that account also they should not be required to
submit the dispute to adjudication by lay-men. It
was also submitted that the arbitration clause even
if it was binding on the respondents firm contempla·
ted a foreign arbitration i.e. the arbitration was to
be held in New York and any award, that might be
made would be a foreign award, the arbitrators
not being subject to the control of the Courts in
India and therefore che provisions of the Arbitration
Act including s. 34 would not be availed of by the
appellants.
By- thtir counter-affidavit the appellants
did not challenge the assertion made by the respondents that all the evidence in connection with the
dispute was in India and that no part of the evidence
was in New York.
The constituted attorney of the
appellants in paragraph 11 of his counter-affidavit
merely affirmed that "there is no sufficient reason
why the matters in respect of which the said suit has
been filed should not be referred to arbitration in
accordance with the arbitration clause in the said
agreement. I deny that there is any valid and/or
sufficient reason why the said disputes which are the
subject-matter of the said suit should not br so referred
1962
Al iehall Goloi1l~
••
Strojudditt Ci C8.
Shah, J.
1962
Midiotl Cola<ki,
••
S1rojuddin & Co.
S"411, J.
~6
SUPREME COURT REPORTS [1964) VOL.
to arbitration.
I further say that it would be a
cause of injustice to the petitioners to permit the
respondents, subsequent to the conclusion of a contract to pick and to choose as whim or prejudice may
dictate which clauses are binding and which are
'·inoperative."
He further stated in paragraph 12
I do not admit that evidence with regard to matters
mentioned in the said paragraph (IO(a) of the respondent's affidavit) is necessary or cannot be given
before the arbitrators as alleged. In particular, D
deny that if arbitration is held in terms of the agreement as deliberately concluded by and between the
parties there will be any denial of justice as alleged
or at all.
I do not admit that it will be necessary or
that it will not be possible for the respondent to send
any representative or to take any witness to New York
as alleged. On the other hand, if the suit is not
stayed, the petitioners will be greatly prejudiced and
will suffer hardship."
••
The High Court addressed itself to the question,
whether the pleas raised by the respondents constituted sufficient reason within the meaning of the Arbitration Act, and pointed out, and in our judgment
it was right in so doing, that the statement made in
the affidavit of the respondent had remained practi·
cally unchallenged, that all the evidence in the case
relating to the disputes was in India and that was a
strong ground for not exercising the discretion in
favour of the appellants. It must be observed that
having regard to the severe re«trictions imposed in
•
the matter of providing foreign exchange to individual citizens it would be impossible for the respondents to take their witnesses to New York and to
attend before the arbitrators at the arbitration proceeding to defend the case against them and the
proceeding before the arbitrators would in effect be
ex parte. That would result in injustice to the respondents. Undoubtedly the appellants would be put
&o some inconvenience if they are required to defend
..
t
\
I S.C.R.
SUPREME COURT REPORTS
27
the suit filed against them in India, but the High
Court has considered the balance of inconvenience
and the other circumstances and has come to the
conclusion, and in our judgment that conclusion is
right, that the facts established make out 'sufficient
reason' for not granting stay.
It was urged by counsel for the appellants that
the High Court for reasons which were not adequate
interfered with the order which was within the discretion of the trial Judge and on that account the order
must be set aside. But the High Court has pointed
out that Ray, J., 'did not give full, proper and
adequate consideration to all the circumstances and
failed to apply his mind to the relevant affidavits'
from which it emerged that all the evidence relating
·to the dispute was in India and that he did not
express his views on the diverse contentions raised
and remained content to observe that he was not in a
position to decide the questions raised thereby and
granted stay because he did not find any compell·
ing reasons for exercising the discretion against the
appellants. This criticism of the High Court appears
not to be unjustified. The High Court was there·
fore competent on the view expressed in interfering
with the discretion.
The two Courts below have differed on the
question as to the law applicable to the contract.
Ray, J., held that the contract was governed by the
American law. In appeal Mr. S. Choudhry appearing
for the appellants propounded that view, but the
Advocate-General of Bengal who followed him conceded (as observed by the High Court) that the "entire
matter would be governed by the Indian law, the
matter of arbitration by the Indian Arbitration Act,
and the other matters under the aforesaid contract by
the Indian Contract Act,
x
x
x
x
x
so far as the rights and obligations under the disputed
contract are concerned, the parties must now be taken
1962
Miclia,I Gol.d11<
v.
S1raiuddin & Co.
Shah, J.
1961
Midiatl Gol.,/11<
••
S...lfillddi• & c •.
SMJ<, J.
28
SUPREME COURT REPORTS [1964] VOL.
to have accepted the Indian Contract Act as the
relevant law for their detennination." Counsel for
the appellants say that no such concession was made
before the High Court by the Advocate-General, and
the observations made in the judgment were the
result of some misconception.
Counsel relies in
support of this submission upon an affidavit ~worn by
one Surhid Mohan Sanyal constituted attorney of
the appellants filed in this Court on the day on which
SJ?Ccial leave to appeal was granted.
Apart from the
circumstance that the affidavit is couched in terms
which are
V<!>~Ue, and the denial is not sworn
on matters within the personal knowledge of the
deponent, it is a somewhat singular circumstance,
that Sanyal who swore the affidavit relied upon,
did not when he swore an affidavit in support of the
petition for certificate under Art. 133 of the Constitution before the High Court, make any such
assertion.
Hut on the view expressed by us, we deem it
advisable not to express any opinion on the question
as to the law applicable to the contract. It will be
for the Court trying the suit to deal witl1 that question, and to dt'cidc the suit.
'
The appeal therefore fails and is dismissed with
costs.
Appeal diamiued.
•
•