# SUPREME COURT REPORTS [1964] VOL. SOCIETE DE TRACTION ET D'ELECTRICITE SOCIETE ANONYME v. KAMANI ENGINEERING COMPANY LTD

- **Citation:** [1964] 3 S.C.R. 116
- **Court:** Supreme Court of India
- **Decided:** 1964
- **Case number:** Ci vii Appeal No. 196 of 1963
- **Bench:** P. B. Gajendraoade:Ar, K. N. Wanchoo, K. C. Das Gupta, J. C. Shah, N. Rajagopala Ayyangar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/supreme-court-reports-1964-vol-societe-de-traction-et-d-electricite-societe-2869
- **Pages:** 25

## Headnote

Arbitration-Agreement between company regi.otered undtr
Indian CompanieB Act and a Fo•eign Company lo refer dispute to
arl>itr'liion in accordance with the rules of International Chamber
of Commerce-Indian Company fileB civil suit dioregarding 1h-,
arbitration clau•e-Foreign Company applies
for slfly of
proceedings-Whether the agreement to refer In arbitration though
a mnehinery
~utside
Indian Act
valid
and enforceable--
Companie• Act, 1.0~1 (Io/ 1956), ss. 389, 494 (bl-Arbitration
Act 1940 (2' of 1940) ss. 34, 46, 47-Arbitration (Protocol
and Convention) Act, 1937 (VI of 1937), s. 3.
The appellant is a corporation incorporated under the
laws of Belguim and carries on bnsiness in Brussels, The
respondent is a company re~istered under Indian Companies
Act, 1913. On April 22, 1959, the respondent entered into
an agreement with the appellant whereby the latter undertook
to provide to the former technical assistance for construction
works. The agreement contained an arbitration clause by
which the parties agreed to refer "all disputes arising fo
connection with this agreement" "under the
Rules of
Conciliation and Arbitration of the International Chamber of
Commerce." In 1961 the respondent instituted a suit on
the'Original Side of the High Court of Bombay praying for
various reliefs against the appellant. Thereupon the appellant
took out a notice of motion for an order staying the proceedings
in the suit persuant to s. 3 of the Arbitration (Protocol and
Convention) Act, 1937, and/or under s. 34 of the Arbitration
Act, 1940, and/or under s. 151 of the Code of Civil Procedure,
1908: The High Court refused the motion on the ground that
the arbitration clause of the agreement was invalid, for it
obliged the appellant, contrary to s. 389 of the Indian
Companies Act, 1956, to go to arbitration otherwise than in
accordance with the Arbitration Act X of 1940. The present
appeal is by way of a certificate granted by the High Court.
•
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,
-
-·
a s.c.R.
SUPREME COURT REPORTS 117
In the appeal it was urged that s. 389 of the Companies
Act was an enabling provision and did not compel an Indian
Company to agree to refer differences to arbitration only in
accordance with the provisions of the Indian Arbitration Act.
If the company desired to refer a dispute to arbitration under
the Arbitration Act it might do so but the power to submit to
arbitration being an incident to the power to enter into a
contract for the purpose of carrying on its business, was
unrestricted and that sub-s. (3) of s. 389 applied not to
consensual arbitration but only to statutory
arbitration in
pursuance of the companies Act, i, e.
arbitration under
s. 494 (b) of the Companies Act, 1956,
Held that s. 389 of the Indian Companies Act, 1956,
is intended to provide that all arbitration to which a company
is a party shall be conducted in accordance with the provisions
of the Indian Arbitration Act X of 1940. Section 3o9 (1)
of the Companies Act, 1956, regulates the power of the Indian
Company to agree to submit disputes to arbitration and by
subs. (3) of s. 389 the Arbitration Act applies to all arbi·
trations to which an Indian Company is a party,
But s. 47 of the Arbitration Act, 1940, is as much a
part of the Indian Arbitration Act as any other provision and
that section makes the provisions of the Arbitration Act
applicable to all arbitrations and to all proceedings thereunder
but subject to the provisions of s. 46 and in so far as is other·
wise provided by any law for the time being in force. By the
use of the words "save in so far as is otherwise provided by any
law for the time being in force the Legislature has clearly made
the provisions of the Arbitration (Prutocol and Convenllon)
Act, 1937 applicable to consensual arbitration under the Arbitration Act, 1940 when the conditions prescribed for applicatiJn
of that Aot are attracted, even if the scheme of arbitration
recognized thereby is inconsistent with ss. 3 to 38 of the Arbi·
!ration Act, 1940. Aruitration acco

## Text

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1963 -- .
.dpril 18
116
SUPREME COURT REPORTS [1964] VOL.
SOCIETE DE TRACTION ET D'ELECTRICITE
SOCIETE ANONYME
v.
KAMAN! ENGINEERING COMPANY LTD.
(P. B. GAJENDRAOADE:AR, K. N. WANCHOO,
K. C. DAS GUPTA, J. C. SHAH and
N. RAJAGOPALA AYYANGAR JJ.)
Arbitration-Agreement between company regi.otered undtr
Indian CompanieB Act and a Fo•eign Company lo refer dispute to
arl>itr'liion in accordance with the rules of International Chamber
of Commerce-Indian Company fileB civil suit dioregarding 1h-,
arbitration clau•e-Foreign Company applies
for slfly of
proceedings-Whether the agreement to refer In arbitration though
a mnehinery
~utside
Indian Act
valid
and enforceable--
Companie• Act, 1.0~1 (Io/ 1956), ss. 389, 494 (bl-Arbitration
Act 1940 (2' of 1940) ss. 34, 46, 47-Arbitration (Protocol
and Convention) Act, 1937 (VI of 1937), s. 3.
The appellant is a corporation incorporated under the
laws of Belguim and carries on bnsiness in Brussels, The
respondent is a company re~istered under Indian Companies
Act, 1913. On April 22, 1959, the respondent entered into
an agreement with the appellant whereby the latter undertook
to provide to the former technical assistance for construction
works. The agreement contained an arbitration clause by
which the parties agreed to refer "all disputes arising fo
connection with this agreement" "under the
Rules of
Conciliation and Arbitration of the International Chamber of
Commerce." In 1961 the respondent instituted a suit on
the'Original Side of the High Court of Bombay praying for
various reliefs against the appellant. Thereupon the appellant
took out a notice of motion for an order staying the proceedings
in the suit persuant to s. 3 of the Arbitration (Protocol and
Convention) Act, 1937, and/or under s. 34 of the Arbitration
Act, 1940, and/or under s. 151 of the Code of Civil Procedure,
1908: The High Court refused the motion on the ground that
the arbitration clause of the agreement was invalid, for it
obliged the appellant, contrary to s. 389 of the Indian
Companies Act, 1956, to go to arbitration otherwise than in
accordance with the Arbitration Act X of 1940. The present
appeal is by way of a certificate granted by the High Court.
•
--
,
-
-·
a s.c.R.
SUPREME COURT REPORTS 117
In the appeal it was urged that s. 389 of the Companies
Act was an enabling provision and did not compel an Indian
Company to agree to refer differences to arbitration only in
accordance with the provisions of the Indian Arbitration Act.
If the company desired to refer a dispute to arbitration under
the Arbitration Act it might do so but the power to submit to
arbitration being an incident to the power to enter into a
contract for the purpose of carrying on its business, was
unrestricted and that sub-s. (3) of s. 389 applied not to
consensual arbitration but only to statutory
arbitration in
pursuance of the companies Act, i, e.
arbitration under
s. 494 (b) of the Companies Act, 1956,
Held that s. 389 of the Indian Companies Act, 1956,
is intended to provide that all arbitration to which a company
is a party shall be conducted in accordance with the provisions
of the Indian Arbitration Act X of 1940. Section 3o9 (1)
of the Companies Act, 1956, regulates the power of the Indian
Company to agree to submit disputes to arbitration and by
subs. (3) of s. 389 the Arbitration Act applies to all arbi·
trations to which an Indian Company is a party,
But s. 47 of the Arbitration Act, 1940, is as much a
part of the Indian Arbitration Act as any other provision and
that section makes the provisions of the Arbitration Act
applicable to all arbitrations and to all proceedings thereunder
but subject to the provisions of s. 46 and in so far as is other·
wise provided by any law for the time being in force. By the
use of the words "save in so far as is otherwise provided by any
law for the time being in force the Legislature has clearly made
the provisions of the Arbitration (Prutocol and Convenllon)
Act, 1937 applicable to consensual arbitration under the Arbitration Act, 1940 when the conditions prescribed for applicatiJn
of that Aot are attracted, even if the scheme of arbitration
recognized thereby is inconsistent with ss. 3 to 38 of the Arbi·
!ration Act, 1940. Aruitration according to the provisions of
the Arbitration (Protocol and Convention) Act, 1937 being
recognized by the Arbitration Act, J 940, an agreement to refer
disputes in accordance with the rules of the International
Chamber of Commerce b not inconsistent with s. 389 of the
Companies Act, 1956.
Sociele Italiano per Lavori M1riUimi v. Bind Con.otructiona
Ltd.• Bombay High Court Appeal No. 63/59, dated 22-9-60,
Bal.:iukand v. Punjub National Bank Ltd. Ambala City, (1936)
I.L.R. 17 Lah. 722 F. B., Jhirighat Native Tea Company .ltd. v.
Bipul Chand Gupta, I.L.R. \1940) I Cal. 358, Eaet Bengal
1963
Societe De TraclitJll
11 D' Electricit•
Soci1te Anonym
v.
Kamani Engi111eri7J6'1
Company Ltd.
969
f(1ciet1 De Tr11ction
It D' Electricitt
Societ11 .Anonyme
v.
4 amani Entineerint
Compa•;1 Ltd.
118 SUPREME COURT REPORTS [1964] VOL.
Bank Ltd. v. Jogesh Chandra Banerji I,L.R. (1940)2 Cal. 237
and The Catholic Bank Ltd., M-•ngalore v. F.P.S. Albuquerque
I.L.R. (1944) Mad. 385 F.B.
'
CIVIL APPELLATE JURISDICTION : Ci vii Appeal
No. 196 of 1963.
Appeal from the judgment . and decree dated
November, 15/16, 1962, of the Bombay High Court
in Appeal No. 32 of 1962.
.
M. 0. Setalvad, M. R. Parpia, J.P. Thacker,
0.0. Mathur, J.B. Dadachanji and Ravinder Narain,
for the appellant.
·
S.T. Desai, Tanubhai D. Desai and 1.N. Shroff,
for the respondent.
1963. April 18. The Judgment of the Court
was delivered by
Shih 1.
SHAHj.-The question which falls to be determined in this appeal with certificate granted by the
High Court of Bombay against an order refusing a
motion for stay of a suit, is :
"Whether an agreement to refer a future dispute
to arbitration according to the rules of the
Internacional Chamber of Commerce between
a Company registered under
the Indian
Companies Act and a foreigner is binding upon
the former."
The facts which give rise to this question are
these : Societe De Traction Et D'Electricite Societe
Anonyme-hereinafter called, for the sake of brevity,
"Traction" -is a Corporation incorporated under the
laws of Belgium and carries on business as consulting and construction engineers at Brussels. The
respondent Kamani Engineering Corporation Ltd-
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3 S.C.R.
SUPREME COURT REPORTS
ll!l
hereinafter called 'Kamani' -is a company registered
under the Indian Companies Act, 1913.
Kamani
carries on business, amongst others, as an engineering
concern. On April 22, 1959 Kamani entered into
a 'Cdlloboration agreement' with Traction whereby
the latter undertook to provide to Kamani technical
assistance for the constructron of overhead railway
electrification, tramway systems and trolley buses in
India, Burma, Ceylon and/or Nepal. The agreement contained. an arbitration clause in Articles X,
which provided :
"All disputes arising in connection with this
agreement during the period of the agreement
or thereafter shall be finally settled under the
Rules of Conciliation and Arbitration of the
International Chamber of Commerce by one
or more arbitrators appointed in accordance
with the Rules of the said International
Chamber of Commerce."
On September 1, 1961, Kamani instituted suit
No. 296 of 1961 in the High Court of Judicature at
Bombay on its original side, inter alia, for-
( 1)
a decree declaring that Traction had
committed diverse breaches of the 'Collaboration agreement' and the agreement
was on that account terminated by Trac·
tion, and Kamani stood discharged from
all its obligations thereunder ;
(2) a decree for accounts of the items contained .in the invoice referred to in paragraphs
24 and 25 of the plaint and for ascertain·
ment of the amount in the light of the
contentions and submissions set out ;
(3) for a decree directing Traction to pay
Rs. 9,00,000/·
together
with interest
196J
Stci1t1 De Tr8Ction
et D' El11tricitc
Sotill• Anonym1
v.
lromlni Engi111ering
Company Lti.
Shah J,
1963
Societe D1 Traltion
et D' Eltct1icit1
Soci1t1 Anonym1
••
.K'amani Enzinierinz
Company Ltd,
Sh<li /;
120 SUPREME COURT REPORTS [1964]VOL.
thereon at the rate of six per cent per
annum from the date of the suit ; and
( 4)
for the aforesaid purposes for an order
that all enquiries be made, directions
given, orders passed and Traction be
directed to hand over to Kamani all docu-
. ments, files, reports, correspondence etc.,
removed by the representatives of the
Traction.
On January 22, 1962 Traction took out a
notice of motion for an "order staying the proceedings in the suit pursuant to s. 3 of the Arbitration
(Protocol and Convention) Act, 1937, and/or s. 34
of the Arbitration Act, 1940 and/or s. 151 of the
Code of Civil Procedure, 1908 and/or the inherent
powers of the High Court" ; in the alternative for
an order that Kamani, its servants and agents be
restrained by an order and injunction from in any
,
mannu proceeding further with or from taking any
further steps in the suit. Kantawalla, J. refused
the motion and the order passed by him was confir·
med in appeal by the High Court. The High
Court held that the arbitration clause of the colla·
boration agreement was invalid, for it obliged
Kamani, contrary to s. 389 of the Indian Companies
Act, 1956, to go to arbitration otherwise than in
accordance with the Arbitration Act X of 1940;
The relevant rules of the International Chamber
of Commerce may
be summarised. Article
7
provides by cl. ( 1) that the Court of Arbitration does
not itself settle disputes . except when otherwise
stipulated : it appoints or confirms the nomination
of arbitrators in accordance with the provisions follow·
ing. If the parties have agreed to the settlement o(
a dispute by a sole arbitrator they may nominate
him by commol'l agreement for confirmation by the
Court of Arbitration , failing agreement between the
,.
3 S.C.R.
SUPREME COURT REPORTS
121
I
•
parties the arbitrator shall be appointed by the
Court of Arbitration. If reference be to three
arbitrators each party shall nominate an arbitrator
for confirmation of the Court of Arbitration which
shall appoint the third arbitrator. If the parties
fail to agree on the number of arbitrators the Court
of Arbitration shall appoint a sole arbitrator who
shall choose the National Committee or Committees
from which it shall request nominations. The sole
arbitrators and third arbitrators must be nationals
of countries other than those of the parties. If any
challenge be made by one of the parties to the
appointment of an arbitrator, the decision of the
Court of Arbitration which is the sole Judge of the
grounds of challenge, shall be final.
On the death
or refusal of an arbitrator to carry out his duties, or
on resignation, the Court of
Arbitration if it
appointed him, shall nommate another arbitrator in
his place. Article 8 deals with initiation of arbitration proceedings. By Art.
13 it is provided that
when the parties agree to submit their disputes to
arbitration by the International Chamber of Commerce, they shall be deemed to submit to arbitration
in accordance with the Rules and if a party raises a
plea as to the existence or validity of the arbitration
clause, if the Court of Arbitration is satisfied as to
the prima f acie existence of such a clause, it may
without prejudice to the admissibility or the merits
of such plea, order that the !'lrbitration shall proceed.
Article 16 prescribes the procedure to be followed
in the arbitration proceeding. The rules by which
the arbitration proceedings shall be governed shall
be the rules of the Chamber and, in the event of
there being no provision in those Rules, those of the
law of procedure chosen by the parties or, failing
such choice, those of the law of the country in which
the arbitrator holds the proceedings shall govern
the proceeding. By Art. 18 the proceedings before
the arbitrator are to take place in the country determined by the Court of Arbitration, unless the parties
lffS
S"cide D1 Tradion
11 D' El1ctricit1
Soci1le A:n~)'lnl
••
Ir omani En1in11rint
Comp1111 Ltd.
llllalr J.
1963
S0Ci1te De Traction
1t D' Elect,icite
Societe Anonym1
••
ICmnani Engine1ring
Company l.td
Shah I.
122 SUPREME COURT REPORTS [1964] VOL.
~~
have agreed in advance upon the place of arbitration.
Article 19 deals with the arbitrator's· terms of
reference. The arbitrator is required, before hearing
of the case commences, to draw up in the presence
of the parties a statement defining his terms of
reference including the names and addresses of the
parties, brief statement of the claims of the parties,
terms of reference, statement of the case, indication
of the points at issue to be determined, the place
of arbitration proceeding, and all other matters in
order that the award when made shall be enforce·
able at law, or which in the opinion of the Court
of Arbitration and the arbitrator, it is desirable to
specify. Article 20 deals with the hearing of the
case by the arbitrator and Art. 21 specifies the powers
of the arbitrator. The arbitrator is competent to
decide the dispute on the basis of the relevant docu·
ments, unless one of the parties requests that a hear·
ing be given.
The arbitrator may suo motu, or on
the request of the· parties, summon the parties to
appear before him at a specified place and time and
if the parties or any of them having been duly
summoned, fail to appear before the arbitrator he
may, after satisfying himself that the summons was
duly served upon the party or parties, proceed with
the arbitration ex parte. Article 23 provides that
the award shall be made within sixty days from the
date ori which the signed statements under Article
19 are submitted, but time may be extended by the
Court of Arbitration. Article 25 deals with the
decision regarding the costs of arbitration, arbitrator's
fee and the administrative costs. By Article 26 the
arbitrator has before completing the award to submit
the same to the Court of Arbitration. The Court of
Arbitration may lay down modifications as to its
form and if need be draw the arbitrator's attention
even to points connected with the merits of the case,
and no award shall under any circumstances be
issued until approved as to its fonn by the Court
ef Arbitration. Articles 27 and 28 deal with th~
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3 S.C.R. SUPREME COURT REPORTS
123
pronouncement and notification of the award. By Art.
28 the award is made final, it being undertaken by
the parties that the award shall be carried out without delay, the parties having waived their right to
any form of appeal, in so far as such waiver may be
valid. By Art. 30 the award is required to be
deposited with the Secretariat of the C.mrt of Arbitration. This is followed by a general rule which
states that in circumstances not specifically provided
for, the Court of Arbitration and the arbitrator
shall act on the basis of the rules and make their
best efforts for the award to be enforceable at law.
The scheme of arbitration contemplated by
these Rules is different from the scheme contemplated
by ss. 3 to 38 of the Arbitration Act.
Some of the
striking provisions of the Rules are the power of
the Court of Arbitration to appoint arbitrators or
umpires, finality of the award without any provision
for resort to the Civil Court to remit or to set aside
the award even for misconduct of the arbitrator or an
error apparent on the face of the award, and the
power of the Court of Arbitration to modify the
award and to give directions during the course of
proceedings for arbitration, and similar provisions.
Kamani is,
as already stated, a company
registered under the Indian Companies Act of 1913
and by s. 3 ( l) of the Indian Companies, Act 1956,
is a 'Company' for the purposes of that 'act. Sec·
tion 389 of the Indian Companies Act, 1956 (before it
was repealed by Act 65 of 1960) read as follows:-
"(l) A company may, by written agreement
refer to arbitration, in accordance with
the Arbitration Act, 1940 (X of 1940),
an existing or future difference between
itself and any other company or person.
(2) A company which is a party to an arbi·
tration may delegate to the arbitrator
1963
Soci.et1 Dt TrtUtion
et D' E/1ctricile
Soci1t1 Arionyme
y,
Eama.rr.i En1imnint
Company Ltd.
Shah /,
19/IJ
Saciet1 De Traction
et D' Eleclricite
Socute Anin.yme
y,
Komani Engirieering
Company Ltd,
Shah J.
124 SUPREME GOUR T REPORTS [1964] VOL.
power to settle any terms or to determine
any matter, capabk of being lawfully
settled or determined by the company
itself, or by its Board of Directors, managing director, managing agent, secretaries
and treasurers, or manager.
(3)
The provisions of the Arbitration Act, 1940
(X of 1940), shall apply to all arbitrations
in pursuance of this Act to which a
company is a party."
The High Court held that an Indian Company
could, because of s. 389 refer an existing or future
dispute between itself and any other company or
person to arbitration only in accordance with the
Arbitration Act, 1940 and not otherwise ; that any
arbitration agreement which obliged the Company
to submit itself to arbitration according to a scheme
of arbitration different from the Arbitration Act, 1940
would not be binding upon the Indian Company, and
therefore the Court had no power to enforce com- ·
pliance with an invalid covenant, and to stay the
suit instituted by an Indian company in breach
thereof. In recording that conclusion the High
Court was guided by its earlier judgment in Societe
Italians per Lavori Marittimi v. Hind Constructions
-
Ltd. ('), that it was not permissible to a Company
. <
incorporated under the Indian Companies Act to
refer disputes to arbitration otherwise than in accordance with the Arbitration Act.
In support of the appeal Mr. Setalvad contended that s. 389 is an enabling provision and does
not compel an Indian Company to agree to refer
differences to arbitration only in accordance with the
provisions of the Indian Arbitration Act, 1940 i.e.
if the Company desires to refer a dispute to arbitration under the Arbitration Act, 1940, it may do so,
but the power to submit to arbitration beini an
(I) Appeal No. 63 of 195a decided on September 22, 1960,
(Unreported,)
3 S.C.R.
SUPREME COURT REPORTS
125
incident of the power to enter into contracts for the
purpose of carrying on its business, is unrestricted,
and that sub-s. (3) of s. 389 applies not to consensual
arbitrations but only to statutory arbitrations in pur8uance of the Companies Act, e.g. arbitrations under
s. 494 (3) (b) of the companies Act 1956.
It cannot be disputed that the use of the expression 'may' is not decisive. Having regard to the
context, the expression 'may' used in a statute has
varying significance. In some contexts it is purely
permissive, in others, it may confer a power and
make it obligatory upon the person invested with the
power to exercise it as laid down.
A company under the Indian Companies Act
is entitled to enter into contracts for all such purposes
as are by its constitution within its competence. It
is invested with a legal personality, and a commercial
company
may subject to
restrictions specifically
imposed upon it by its memorandum or Articles,
always enter into contracts for the purpose of its
business subject in the matter of form to s. 46 of the
Companies Act. An arbitration agreement being a
contract to submit present or future differences
between the parties not to the ordinary courts but
before a tribunal chosen by the parties, if the
company has the power to enter into a contract, that
power would include power to submit a dispute to
arbitration out of court. By s. 28 of the Indian
Contract Act agreements in restraint
of legal
proceedings are declared void, subject however to
the rule that a contract by which two or more persons
agree that any dispute which has arisen or which
may arise between them in respect of any subject
or class of subjects shall be referred to arbitration,
is not illegal. Section 389 of the Companies Act,
195fi, therefore, doc> r ct confer any new right upon
Companies to agree to refer disputes which have
arisen or which may arise to
arbitration : the
1963
Sotiete De Traction
et D' E/1 :t•idt1
S«it11 AnonJml
v.
K01"ani Engin11ring
C•mpany Ltd.
Shah J.
&citte D1 Traction
et· D' Elei:rricit1
&cit1t Ano1i,Y'11t
v •
. Kamani Engineering
· C.mpany Ltd.
S"4h J.
126 SUPREME COURT REPORTS (1964] VOL.
,..1
section recognises the rights of a company to
refer present disputes to arbitration, and seeks to
regulate the right by placing a restriction upon the
exercise of that right. It is pertinent to remember
that the Arbitration Act, 1940 is in form a code
relating to the law of arbitration and applies to all
arbitrations: it applies to all arbitrations to which
persons natural and legal are parties. The power of
the Company to enter into an arbitration agreement
is therefore not conferred for the first time by the
Companies Act; it is merely regulated by s. 389 of
the Companies Act. In other words, a company
within the meaning of the Indian Companies Act,
1956 has the power to refer present or future disputes
to arbitration, but such reference has because of the
statutory ·provision to be in accordance with the
Arbitration Act, 1940. Sub·section (3) of s. 389
makes the provisions of the
Arbitration Act,
applicable to all arbitrations to which a company
is a party, provided they are in · pursuance of the
Companies Act. There is no warrant for holding
that sub·s. (3) is independent of suh-s. (1). Subsection (1) affirms the power of a company to refer
differences between it and another
company or
person, and also regulates it. Sub-section (3) makes
the provisions of the Arbitration Act applicable to
all arbitrations to which a company is a party : it
is not restricted to mere statutory arbitrations to
which a ·company is obliged to submit by virtue
of the provisions of the Companies Act. To invest
sub·s. (3) with a restricted meaning, is to make it
redundant.
The only provision of the Companies
Act which compels a company to go to arbitration
in respect of a dispute is s. 494 (3) (b). By that
clause
a
member
of a transferor
company
in voluntary liquidation expressing dissent against
an arrangement relating to the acceptance of shares,
policies or other interest or participation in profits·
in the transferee company in consideration of the
business of the former may require the liquidator
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•
•
.. •
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•
3 S.C.R.
SUPREME COURT REPORTS
12'1
to purchase his interest at a price to be determined
by agreement or by arbitration
in the manner
provided bys. 494, and sub-s. (6) expressly makes
the provisions of the Arbitration Act applicable to
such arbitration. It may be observed that the words
"other than those restricting the application of that
Act" in sub-s. (6) have no meaning. They have
been merely copied from s. 208C of the Companies
Act of 1913, in which they survived by some
inadvertance, even after the repeal of the Arbitration
Act of 1899. Our attention has not been invited
to any other provisions under the Indian Companies
Act under which compulsory arbitration has to be
undertaken between a company and another company
or person and in regard to which no provision
relating to the applicability of the Arbitration Act
has expressly bren made. The provisions relating
to arbitration in the earlier Companies Act also
confirm that view. A retrospect of legislation
relating to arbitration in the
context of the law
relating to Companies would serve also in clearing
the ground in appreciating the reasons which led to
conflicting decision~ in the High Courts.
It may not be necessary to enter upon
a
detailed review of the Regulations and Acts in force
prior to the year 1882. It may be sufficient to
observe that in the Presidency towns of Calcutta,
Madras and Bombay there were diverse Regulations
in operation which
provided for machinery for
amicable settlement of disputes of civil nature by
arbitration. For the first time by
Act 8 of 1859
in the Code of Civil Procedure a provision was made
for reference of disputes to arbitration by parties to
the
suit applying to the Court in which the
suit was pending in which the matter was referred to
arbitration. Then came the Indian Contract Act
9 of 1872, which recognized the validity of contracts
requiring parties to submit their disputes either
·.;
present or future to arbitration. In 1822 the Indian
1969
Saciet1 De TraetUm
1t D 1 Electrieit1
So<it11 Anrmym1
v.
Kamani Engineerinz
Company Ltd.
~hah· J,
1969 -
Soci1te D1 Troction
et o• Ettct•ieite
Soei1{e .dflOnyme
••
"Kamani Enginte,ing
Company Ltd
Shah J.
128 SUPREM:E COURT REPORTS [1964] VOL.
Companies Act 6 of 1882 was enacted which by
ss. 96 to 123 made provisions for arbitration out of
Court, of disputes in which companies were concerned.
A company could refer by writing under its
common seal any matter whatsoever in dispute
between itself and any other company or person, and
the procedure prescribed in those sections applied.
This group of sections dealt exhaustively with
arbitrations out of court to which a company was a
party. Beside enacting the procedure for arbitration it provided that the award of the arbitrator was
not liable to be set aside on any ground of irregularity or informality. -On the application of any
party interested the arbitration agreement could be
filed in the High Court having jurisdiction, and an
order of reference could be made thereon. Immediately in the wake of the Companies Act, 1882 the
Code of Civil Procedure (Act 14 of 1882) was enacted
which provided by Ch. XXXVII the general law
relating to
arbitration. Sections !506 to 522 dealt
with arbitration in a pending suit. If all the parties
to a suit desired that any matter in difference between them in the suit be referred to arbitration, they
could, at any time before judgment was pronounced,
applv to the Court for an order of reference. By
s. 523 provision was made enabling the parties to an
arbitration agreement to file it in Court and the
Court if satisfied as to the existence of the arbitration
agreement could make a reference to the arbitrator
appointed bv the parties or nominated by the Court
and the provisions relating to arbitration in the earlier
sections in so far as they related to or were consistent with the agreement
applied. Section 525
enabled any person interested in the award made in
a matter referred to arbitration without the intervention of a Court of Justice to file the same iii
Court and if no ground for setting aside the award
was made out, the Court could otder that the same
be filed. Chapter XXXVII therefore dealt with arbitration generally-arbitration in pending proceedings,
~ ,,
.. ,
,_
.... ~
1
3 S.C.R.
SUPREME COURT REPORTS
129
'.)
~
..;
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··:
!ii '
'
arbitrations pursuant. to orders passed
by the
Court referring a dispute on an agreement filed in
Court, and filing of awards made by arbitrators
appointed by valid agreements out of Court. The
combined· effect of the Indian Companies Act ss. 96
to 123 and the Code of Civil Procedure ss. 506
to 526 was that where a Company was a party to
an arbitration out of Court, the arbitration proceedings had to take place in accordance with the
Companies Act and could be enforced in the manner
provided thereunder. Filing of an arbitration agreement in Court for reference was also governed by
the Companies Act, but arbitration in a pending suit
to which a Company was a party was governed by
the Code of Civil Procedure.
In 1899 the Indian Legislature enacted the
Indian Arbitration Act, 9 of 1899. That Act had a
limited operation. By s. 2 it was provided that
it shall apply only in cases where if the subjectmatter submitted to arbitration were the subject of
a suit, the suit could, whether with leave or otherwise, be instituted in a Presidency-town.
By the
proviso it was open to the Local Government, to
declare the Act ·applicable in other local area as if
it were a Presidency-town.
By s. 3 proviso (2) it
was provided that nothing in the Act shall affect the
provisions of the Indian Companies Act, 1882 relating to arbitration. The provisions of the Indian
Companies Act, 1882 contained in ss. 96 to 123
therefore continued to remain in operation and to
apply to companies notwithstanding the enactment
of the Indian Arbitration Act, 1899. The Civil
Procedure Code of 1882 was repealed by Act 5 of
1908 and the provisions relating to arbitration substantially on the same pattern as in the Code of 1882
"
were incorporated in a separate schedule in the new
Code. Clauses 1 to 16 dealt with references to arbitration of the differences between the parties to a
__ ,
suit if they applied in writing in that behalf.
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So1<it11 Dt TY•clia11
1t D' Electrirhi
$~ciet1 . Ano11Jm1
v.
K.m.ni.Eui!f1er£111
Cornμ,ny. Ljd.
S4.Ji J.
Soei1r1 01 Tr11ction
11 D 1· ·Eledrfrite
Socittf -A1r1111yme
••
Kaani Erigin.111;,rg,
~.1 Lti.
Shh J. ·
130
SUPREME COURT REPORTS [1964] VOL.
Clauses 17 to l 9 dealt with orders of references on
agreements to refer disputes to arbitration,. and
clauses 20 and 21 dealt with the tiling and enforcement of awards.
Section 89
wa~ specially enacted
in thr. Code which provided by the tirst sub-section:
"(l) Save in so far as is otherwise provided
by the Indian Arbitration Act, 1899, or by any
other law for the time being in force, all references to arbitration whether by an order .in a
suit or otherwi>e, and all proceedings thereunder, shall be governed by the provisions
contained in the Second Schedule."
The effect of s. 89 was to make the Second Schedule
applicable to all arbitrations other than those governed by the Indian Arbitration Act, 1899 or any
other law for the time being in force.
Therefore
since the enactment of the Code of Civil Procedure,
1908 all arbitr.ttions out of Court where a company
was a party had to be conducted in the manner
provided by the Companies Act, 1882 but arbitrations during the pend ency of a suit or refereuces to
arbitrations by filing an arbitration agreement could
be made under the appropriate clauses of the Code
of Civil Procedure. The Indian Companies Act,
1882 was repealed by the Companies Act 7 of 1913 ..
By s. 290 of that Act read with Schedule IV the
Indian Companies Act of lil82 and the second proviso to s. 3 of the Indian Arbitration Act, 1899 were
repealed.
The Indian Companies Act, 1913 incorporated a new section 152 which by the first clause
authorised a company by written agreement to refer
to arbitration, in accordance with the Indian Arbitration Act, 1899, an existing or future difference
hetween itself and any other company or person, and
by the third sub-section enacted that the provisious
of the Indian Arbitration Act, 189l!, other than those
restricting the application of the Act in respect of the
subject-matter of the arbitration, shall apply to all
!Lrbitrations between companies and persons in purr--
\
•
..
3 s.c.R.
SUPREME COURT REPORTS
131
suance of the Companies Act.
The arbitrations to
which a company was a party had therefore to take
place irrespective of the restrictions contained in
s. 2 of the Arbitration Act, 1899, according to the
provisions of the Arbitration Act, 1899.
Section 214
of the Companies Act, 1913 (which was later renumbered s. 208 C by Act XXII of 1936) provided for
compulsory arbitration for purchasing the interest of
a member of a Company in voluntary liquidation
when the business of the company was agreed to be
transferred to another company in the course of liquidation and the liquidator and the member could
not agree as to the price payable in respect thereof.
By cl. (6) of that section it was expressly provided
that the provisions of the Arbitration Act, 1899, other
than those restricting the application of that Act in
respect of the subject-matter of the arbitration, shall
apply to all arbitrations in pursuance of s. 214.
The Government of India was a party to the
Protocol on Arbitration Clauses and the Convention
on the Execution of Foreign Arbitral Awards. To
enforce the terms of the Protocol, the Indian Legislature enacted the Arbitration (Protocol and Convention) Act, 6 of 1937 for enforcement of foreign
awards on differences relating to matters considered
as commercial under the law in force in British India
in pursuance of an arbitration agreement to which
the Protocol set forth in the First Schedule applied,
between persons who were subject to the jurisdiction
of the powers notified by the Governor-General in
that behalf as parties to the Convention.
By s. 3 of
that Act it was provided that :
"Notwithstanding anything contained in the
Indian Arbitration Act, 1899, or in th~ Code
of Civil Procedure, 1908, if any party to a
submission made in p1irsuance of an agreement
to which the Protocol set forth in the First
Schedule as modifiFd by the re1ervation subject
to which it was signed by India applies, or any
J96!J
\oci1U De 1 ra ·tinll
et D' E/er:t1 it:iu
Socittt
An1nym~
v..
'
£ amani EntinurU.,t
C1m/Jo•y L1i
>"4h J.
1963
Soii4t1 D1 Trution
1t D' · Elldtieitl
So&UU AllM{)'me
v.
K .. ..; Enzinming
c~u•.
SWJ.
132 SUPREME COURT REPORTS [1964] VOL.
person claiming through or under him, commen:
ces any legal proceedings in any Court against
any other party to the submission or any person
claiming through or under him in respect of
any matter agreed to be referred, any party to
such legal proceedings may, at any time after
appearance and before filing a written statement or taking any other steps in the proceedings, apply to the Court to stay the proceedings;
and the Court, unless satisfied that the agreement of arbitration has become inoperative or
cannot proceed, or that there is not in fact any
dispute between the parties with regard to the
matter agreed to be referred, shall make an
order staying the proceedings."
By this enactmeut an obligation in the conditions set
out in s. 3 was imposed upon the Court, unless it
was satisfied that the agreement of arbitration had
become inoperative or could not proceed, to direct
that the suit filed in any Court in India against any
•
other party to the submission shall be stayed. This
provision applied to
all
arbitration agreements
whether a company was or was not a party thereto.
This Act was followed by the Arbitration
Act, X of 1940.
The Act was enacted in the form
of a complete code on the law of arbitration in India.
...
..
All consensual arbitrations were governed by the
..,_
Arbitration Act and by .. s. 46 the provisions of the
Act, except sub-s (1) of s. 6 and ss. 7, 12, 36 and 37
were made applicable to every arbitration under any
other enactment for the time being in force, as if
the arbitration were pursuant to an arbitration agreement, and as if that other enactment were an arbitration agreement, except in so far as the Act was nconsistent with that other enactment or with any rules
made thereunder.
Bys. 4.7 it was provided that :
"Subject to the provisions of section 46, and
save in so far as is otherwise provided by any
''-·
•
•
r
3 S.C.R.
SUPREME COURT REPORTS !33
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 all
parties interested be taken mto consideration
as a compromise or adjustment of a suit by
any Court before which the suit is pending."
By s. 49 read with the Fourth Schedule the figure
"1899" ins. 152(1) & (3) in the Companies Act, 1913
was substituted by the figure "11J40"' and the words
in sub-s. (:3) "other than those restricting the application of the Act in respect of the subject-matter of the
arbitration" were deleted.
So also s. 89 of the Code
of Civil Procedure was deleted. The effect of this
amendment was to make the Arbitration Act applicable to all arbitrations in pursuance of the Companies
Act, 1913 in which a company was a party. No
amendment, however, was made in the Arbitration
(Protocol and Convention) Act, 6 of 1937 and none
such was necessary.
By virtue of the saving clause
ins. 47 the provisions of the Arbitration (Protocol
aud Convention) Act, 1937 continued to operate.
The Indian Companies Act, 7 ofl913 was
repealed by the Companies Act I of 1 !l5fi and s. 389
took the place of s. l 52 of the former Act with a
sli~ht modification.
Under the Arbitration Act,
1899
read
with
the
Companies
Act,
1913.
the
power of a
company to
refer differences
to arbitration fell to be determined in certain cases
which arose, before the High Courts of Lahore,
Calcutta and Madras. In Sita Ram Balm11kand v.
The Pitnjab National Bank Ltd. Ambala City{'),
there was a private arbitration in a dispute between
the Punjab National Bank Ltd. and a debtor of the
Bank and the arbitrator made his award in favour
of the Bank.
This award was filed in the Court
(1) (1936) I. L. !\, 17 Lah. 712 f· ll
Soci1t1 1)1 Tra,iw.
u · D' Eltdritdb
Soci1u A._
Y,
!Lamani Enptwint
C11111p.ny Lii.
Sha /,
1969
3•citle D1 Tr•ction
et D' Electricit1
Societe An""'in!
••
Kvn,•11i Entint1ri111
C1mpanv Ltd.
Shah J.
134' SUPREME COURT REPORTS [1964] VOL.
of tlie Senior Subordinate Judge, Ambala under
Sch.
I of the Code of Civil Procedure, 1908
and a decree was obtained in accordance with the
provisions of that Schedule. Execution was then
taken out and property of the debtor was attached.
The debtor contended that the award and the decree
by the Court were invalid, because arbitration to
which a company was a party had, in view of the
provisions of s. 152 of the Indian Companies Act,
to take place in accordance with the provisions of the
Arbitration Act, 1899 and the award could only be
filed in the Court of the District Judge and not
in the Court of the Senior Subordinate Judge and
therefore the proceedings in execution "were ultra
vires"·.
The High Court held that s. 15:l of the
Indian Companies Act,. 1913, enacted an enabling
provision and did not make it obligatory upon the
parties one of which was a company, to go to arbitrat.on in accordance with the requirements of the
Indian
Arbitration Act, 1899.
The provisions of
s. 152 in the view of the Court being permissive,
the Company could apply to have an award filed
in Court under paragraph 21 (1) of Sch. II to the
Code of Civil Procedure and the decree passed by
the
Senipr Subordinate Judge was not a nullity as
contended by the debtor. Bhide, J, who delivered
the judgment of the Court observed that the general
policy of the Legislature as disclosed by s. l 52 of the
Indian Companies Act, 1913, was not to make
compliance in arbitration proceedings with the
provisions of the Indian Arbitration Act, 1899,
obligatory outside the Presidency-towns and that
s. 152 being an enabling provision it merely conferred power on companies to refer disputes to arbitration under the Indian Arbitration Act, 1899, by an
agreement in writing when that course was preferred.
This view was not accepted by the Calcutta High
Court in Jhirighat Native Tea Company Ltd. v.
Bipul Chandra Gupta (1). In that case the jurisdiction of the. Distri.ct Court to entertain a petition
\I/ I,!... R. (1910) I Cal, s~s.
•
3 S.C.R.
SUPREME COURT REPORTS
135
under paragraph-20 of Sch. II of the Code of Civil
Procedure for an order filing an award made out of
court where one of the parties to the dispute was a
company registered under the Indian Companies
Act, 1913, was challenged.
It was held by the
High Court of Calcutta that by virtue of the provisions of s. l52 sub-ss. (1) and (3) of the Indian
Companies Act, l!Jl3, all arbitrations between companies and persons had to take place in accordance
with the
provisions of ss. 3 to
22 of the Indian
Arbitration Act,
1899, and
for
that purpose,
s. 2 of the Indian Arbitration Act
restricting its
local application was to be treated as non-existent.
The Court also opined that in view of s.