# UNION OF INDIA v. BIRLA COTTON SPINNING & WEAVII\G

- **Citation:** [1964] 2 S.C.R. 599
- **Court:** Supreme Court of India
- **Decided:** 1964
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-v-birla-cotton-spinning-weavii-g-2948
- **Pages:** 9

## Headnote

2 s.c.R..
SUPREME COURT REPORTS
599
For these reasons I would allow the appeal with
costs here and in the High Court.
BY CourtT : In accordance with the majority
opinion the appeal is dismissed witll costs subject to
the directions contained in the judgment.
Appeal dismi$sed.
UNION OF INDIA
v.
BIRLA COTTON SPINNING & WEAVII\G
MILLS LTD.
(B. P. SINHA a. J., J. a. SHAH and
N. RAJAGOPALA AYYANGARjj.)
.Arbitration-Balance of pl'ice of goods llf1Jplied under o
wntract-Liability to pay admitted-Invocation of the a.rbitration clause in the contract to set off money due nnder a different
and independent contmct-Whether
permi .. ible-Arbitration
Act, 1940 (•T of I940), s .. 34.
The re•pondent •upplied to the appellants goods of the
value of R>. I,06;670.89 nP. under a contract..entered into by
the parties and received about Rs. 93,727/- a• part payment.
The appellant declined to pay the balance on the pica that an
amount of about R5. I0,625i- was due to the appellant under
ar:iother contract between the parties. 'l'he re~pondent tl1crcupon filed a suit before the Senior Subordinate Judge, Delhi,
for realisation of the amount.
The appellant applied under
o. 34 of the Arbitration Act, 1940, for stay of the suit alleging
that a dispute had arisen between the parties and there being
an arbitration agreement it could be invoked by the appellant.
The respondent submitted that there was no <lispute concerning
the contract which \Va! covered by any va1icl arhitrati0n clause
and which attrarted the application of s. 34· of the Arbitration
Act,
. . 1963
laxmitlas /Ja/Jysihai
'
IL abarw~la
v.
Nn11abht1i Cht1flilttl
Kaharwdfc:
1963
Mareh 27
1963
u.; .. •f truli•
v.
flirlo C.tlln Spiffllint
&W..,.;,,1.lliU1
ltd.
tiOO
SUPREME COURT REPORTS [1964) VOL.
The Subordinate Judge held that before s. 34 could be
invoked the suit must raise a dispute in respect of the matter
agreed to be referred to arbitration and not independent of it
an<l as no dispute was raised by the appellant about its liability to pay the amount claimed by the respondent arising
out of the contract and the only dispute which was sought to be
raised was in respect of the liability of the respondent under
another contract the suit could not be stayed.
An
appeal
agairnt this order wa. dismissed in limint by the I !igh Court.
The present appeal was by way of special leave granted by
this Court.
It was contended that the terms of the arlJitration
agreement included a dispute relating to a refusal to meet the
obligations arising under the contract even though the refusal
was not founded on any right arising under the terms of the
contract.
lltld that for e11forcement of the arbitration clause there
must exist a dispute; in the absence of dispute between the
parties to the arbitration agreement there can be no reference.
A plea that the appellant though liable to pay
the
amount under the terms of the contract would not pay it
because it desired to appropriate it towards another claim
under another independent contract cannot reasonably be
regarded as a dispute "under or in connection" \Vith
that
contract under which the liability sought to be enforced has
arisen.
Uttam Chand Saligra1n v. Jewa Mamooji, I.L.R. 46 Cal,
Chundanmul!Jahaleria v. Clive .Milt. Co., Ltd., I.L.R. (1946)
2 Cal. 297 and Heyman v. Darwin• Ltd., L.R, [1942] A.C. 356
distinguished.
C1vIL APPELLATE juRISDIGTION : Civil Appeal
No. 609 of 1961.
Appeal by special leave from the judgment
and order dated April 12, 1960 of the Punjab High
Court (Circuit Bench) at Delhi in First Appeal from
Order No. 43-D of l!lGO.
N. S. Bindra and R. If. Dhebar, for the
appellant.
G. B. Pai, .J.B. Dmillclmnji, 0. G .. ilfothur
and Raviniler J.:amin, for the respondent.
2 s.c.R..
SUPREME COURT REPORTS
601
1963. March 27. The Judgment of the Court
was delivered by
SHAHJ.-The Birla Cotton Spinning and Weaving Mills Ltd.-hereinafter called 'the Company'-
supplied to the Union of India goods of the value
of Rs. 1,06,670.89 nP. under a contract dated

## Text

2 s.c.R..
SUPREME COURT REPORTS
599
For these reasons I would allow the appeal with
costs here and in the High Court.
BY CourtT : In accordance with the majority
opinion the appeal is dismissed witll costs subject to
the directions contained in the judgment.
Appeal dismi$sed.
UNION OF INDIA
v.
BIRLA COTTON SPINNING & WEAVII\G
MILLS LTD.
(B. P. SINHA a. J., J. a. SHAH and
N. RAJAGOPALA AYYANGARjj.)
.Arbitration-Balance of pl'ice of goods llf1Jplied under o
wntract-Liability to pay admitted-Invocation of the a.rbitration clause in the contract to set off money due nnder a different
and independent contmct-Whether
permi .. ible-Arbitration
Act, 1940 (•T of I940), s .. 34.
The re•pondent •upplied to the appellants goods of the
value of R>. I,06;670.89 nP. under a contract..entered into by
the parties and received about Rs. 93,727/- a• part payment.
The appellant declined to pay the balance on the pica that an
amount of about R5. I0,625i- was due to the appellant under
ar:iother contract between the parties. 'l'he re~pondent tl1crcupon filed a suit before the Senior Subordinate Judge, Delhi,
for realisation of the amount.
The appellant applied under
o. 34 of the Arbitration Act, 1940, for stay of the suit alleging
that a dispute had arisen between the parties and there being
an arbitration agreement it could be invoked by the appellant.
The respondent submitted that there was no <lispute concerning
the contract which \Va! covered by any va1icl arhitrati0n clause
and which attrarted the application of s. 34· of the Arbitration
Act,
. . 1963
laxmitlas /Ja/Jysihai
'
IL abarw~la
v.
Nn11abht1i Cht1flilttl
Kaharwdfc:
1963
Mareh 27
1963
u.; .. •f truli•
v.
flirlo C.tlln Spiffllint
&W..,.;,,1.lliU1
ltd.
tiOO
SUPREME COURT REPORTS [1964) VOL.
The Subordinate Judge held that before s. 34 could be
invoked the suit must raise a dispute in respect of the matter
agreed to be referred to arbitration and not independent of it
an<l as no dispute was raised by the appellant about its liability to pay the amount claimed by the respondent arising
out of the contract and the only dispute which was sought to be
raised was in respect of the liability of the respondent under
another contract the suit could not be stayed.
An
appeal
agairnt this order wa. dismissed in limint by the I !igh Court.
The present appeal was by way of special leave granted by
this Court.
It was contended that the terms of the arlJitration
agreement included a dispute relating to a refusal to meet the
obligations arising under the contract even though the refusal
was not founded on any right arising under the terms of the
contract.
lltld that for e11forcement of the arbitration clause there
must exist a dispute; in the absence of dispute between the
parties to the arbitration agreement there can be no reference.
A plea that the appellant though liable to pay
the
amount under the terms of the contract would not pay it
because it desired to appropriate it towards another claim
under another independent contract cannot reasonably be
regarded as a dispute "under or in connection" \Vith
that
contract under which the liability sought to be enforced has
arisen.
Uttam Chand Saligra1n v. Jewa Mamooji, I.L.R. 46 Cal,
Chundanmul!Jahaleria v. Clive .Milt. Co., Ltd., I.L.R. (1946)
2 Cal. 297 and Heyman v. Darwin• Ltd., L.R, [1942] A.C. 356
distinguished.
C1vIL APPELLATE juRISDIGTION : Civil Appeal
No. 609 of 1961.
Appeal by special leave from the judgment
and order dated April 12, 1960 of the Punjab High
Court (Circuit Bench) at Delhi in First Appeal from
Order No. 43-D of l!lGO.
N. S. Bindra and R. If. Dhebar, for the
appellant.
G. B. Pai, .J.B. Dmillclmnji, 0. G .. ilfothur
and Raviniler J.:amin, for the respondent.
2 s.c.R..
SUPREME COURT REPORTS
601
1963. March 27. The Judgment of the Court
was delivered by
SHAHJ.-The Birla Cotton Spinning and Weaving Mills Ltd.-hereinafter called 'the Company'-
supplied to the Union of India goods of the value
of Rs. 1,06,670.89 nP. under a contract dated
January 30, 1956 and received Rs. 93, 727/- as part
payment of the price .. The Union declined to pay
the balance of Rs. 12,943.89 nP. The Company
then commenced Suit No. 386 of 1958 in the Court
of the Senior Subordinate Judge, Delhi, against the
Union of India for a decree for Rs. 10,625/- and
Rs. 2, 762.50 nP. as interest from October 12, 1956
till date of suit and
interest pendente lite and costs
of the suit. The Company alleged that the Union
had
withheld
payment of
the
balance of
Rs. 12,943. 89 nP. on the plea that an amount of
Rs.10,625/- was due to the Union under another contract between the parties for a bulk purchase order
No. PBI/ 7028-705 dated December 16, 1949.
The
Company submitted that there was no such contract
and the dispute raised in that behalf by the Union
had been referred to the arbitration of the Officer
on Special Duty, Directorate General of Supplies
and Disposals and Shri Ramniwas Agrawala but
had since been adjourned sine die by the arbitrators.
The Union by petition dated May 19, 1959
applied under s. 34 of the Indian Arbitration Act for
stay of the suit alleging that a dispute had arisen
between the parties and there being an arbitration
agreement which could be invoked under the circumstances and the Union being ready and willing to do
all things necessary for the proper conduct of the
arbitration under cl. 21 contained in form No. WSB133. The Company resisted the petition contending that there was no dispute concerning the contract
which was covered by any valid submission or arbitration clause, and which attracted the application
1963
Union of lndia
v.
Birla Cotton Spinning
& f'Veavinz Mills
Ltd.
Shah J.
196J
Union nj /111{j4
v
Pi1!a C'lf/1•1 S/1in11i11·:
0 ll'tai-ing .lhllr
ltd
Shah J.
ii02
SUPREME COURT REPORTS (1964] vot.
of s. 34 of the Arbitration
Act. The Subordinate
.Judge held that before s. il4 could be invoked the
suit must raise a
dispute iu respect of the matter
agreed to be referred to arbitration and not indepen·
dent of it and as no dispute was raised by the union
about its liability to pay the amount claimed by the
Company arising under the contract and the only
dispute which was sought to be raised was in respect
of the liability of the Company under another
contract, the suit could not be stayed.
An appeal
against the order refusing to stay the suit was dismissed in limine by the High Court of Punjab. With
special leave, the Union has appealed to this Court.
The only contention raised in the appeal is
that the terms of the arbitration agreement include a
dispute relating to a refusal to meet the obligatiom
arising under the contract even though the refusal
was not founded on any right arising under the terms
of the contract. The arbitration agreement is contained in cl. 21, which is so far as it is material
provides :
"In the event of any question or dispute
arising under these conditions or any special
conditions of contract or in connection with this
contract (except as to any matters the decision
of which is specially provided for by
these
conditions)
the same shall be referred to the
award of an arbitrator to be nominated by the
purchaser and
an arbitrator to be norni nated
by the Contractor, or in case of the said arbi·
trators not agreeing then to the award of an
Umpire co he appointed by the arbitrators in
writing before proceeding on the reference and
the
decision of
the arbitrators, or in the
event of their not agreeing of the Umpire
appointed by them shall he final and conclusive
and the provisions of thr. Indian Arbitration
Act, 1\)40, and of the Rules thereunder and
2 S.C.R.
SUPREME COURT REPORTS
eo3
any Statutory modification thereof shall be
deemed to apply to and be incorporated in
this con tract."
The arbitration clause
is wide and includes not
only disputes arising under the covenants of the
contract but also to disputes under conditions general
or special or in connection with the contract. But
before an order for stay of a proceeding may be
made under s. 34 of the Arbitration Act, the following conditions must co-exist :
(i) there must be a subsisting and binding
arbitration agreement
capable of being
enforced between the parties ;
(ii) the subject-matter in dispute in the proceeding sought to be stayed must be within
the scope of. the arbitration agreement ;
and
(iii) the petition must be made to the judicial
authority by a party to the arbitration
agreement or some person claiming under
him at the earliest stage of the proceeding
i. e. before the filing of the written statement or taking any other step in the
proceeding.
The Judicial authority may, if these conditions exist,
grant stay, if it is satisfied that the party applying
is and has also been at all material
times before
the proceedings were commenced ready and willing
to do all things necessary for the proper conduct
of the arbitration and there is no sufficient reason
for not referring the matter in accordance with the
arbitration agreement.
The evidence recorded by the Trial Court discloses that there was no dispute between the Company
1963
Union of India
v.
Bi1la Cotton Spinnint
& VV eaving Mills
Ltd.
Shah J.
1963
[.'11i1m rf In fia
v.
Hi1lii Cr.t1m1 _''lpi111;irig
& iftai·illg A1iltJ
Ltd.
Shah J.
604 SUPREME COURT REPORTS [1964] VOL.
and the Union arising under the contract on
which the suit was filed.
The Union accepted liability to pay the amount claimed by the Company in
the suit. The Union still declined to pay the amount
asserting that an amount was due from the Company
to the Union under a distinct contract. This amount
was not sought to be set-off under any term of the
contract under which the Company made the claim.
The dispute raised by the Union was therefore not
in respect of the liability under the terms of the contract which included the arbitration clause, but in
respect of an alleged liability of the Company under
another contract which it may be noted had already
been referred to arbitration. The Union had no
defence to the action filed by the Company : it was
not contended that the amount of Rs. 10,625/- was
not due to the Company under the contract relied
upon by the Company. For enforcement of the arbitration clause there must exist a dispute : in the
absence of a dispute between the parties to the arbitration agreement, there can be no reference.
It was urged that mere refusal by the Union to
pay the amount due is sufficient to raise a dispute
"in connecti.on with the contract" within the meaning of cl. 21 of the Arbitration agreement. We are
unable to agree with that contention.
A dispute that
the Union is not liable to pay the price under the
terms of the contract is undoubtedly a dispute under
the contract, and in any event in connection with the
contract. But a plea that the Union though liable
to pay the amount under the terms of the contract
will not pay it because it desires to appropriate it
towards another claim under another independent
contract cannot reasonably be regarded as a dispute
"under or in connection" with that contract under
which the liability sought to be enforced has arisen.
The decision of the Calcutta High Court in
Uttarn ChrJnd. 8aliymrn v . .Jewa Marnooji ('), on
(I) I.L,R. 46 Cal.
2 S.C.R.
SUPREME COURT REPORTS
605
which reliance was placed by the Union does not, in
our judgment, support any such proposition. In that
case an award of the arbitrator was challenged on
the ground that it was without jurisdiction, there
being no dispute between the parties, the party applying having admitted his liability under the contract.
Rankin J. held that though the existence of a dispute was an essential condition for the arbitrator's
jurisdiction, the dispute may be either in the acknowledgement of the debt or as regards the mode and
time of satisfying it.
In that case the Court held
that the defence of the applicant applying for vacating the award was that he was not under any obligation to pay the amount due. This is clear from the
observation made on p. 540 where the learned Judge
observed :
"x
x
x but in truth the petitioner's
later letters to the Chamber, his petition itself
in paragraphs 5, 6 and 12, paragraph 6 of the
affidavit filed in this behalf in reply all show
conclusivly that he was withholding payment
under a claim of right so to do. That the
claim has little substance makes his case so
much the worse."
The Union is however not seeking to withhold payment under a claim of right so to do. What the
Union contends is that under the contract they are
liable to pay the amounts due but they will not pay
because they have another claim unrelated to the
claim in suit against the Company.
The decision of the Calcutta High Court in
Chundanmull Jhaleria v. Clive Mills Co. Ltd. ('), on
which also reliance was placed does not assist the
Union. In that case the Court decided that an arbitration clause in a contract, by which the parties
thereto agree to refer their disputes to arbitration;
may be wide enough to include a dispute whether th<:
\ll I.L,R. (1948) 2 Ca). 297.
1963
Union of India
v.
Birla Cotton Spinning
& Weaving Mills
Ltd.
Shah J.
196S
Unir.11 of lndi:z
v.
Bfr/o Colian Spirming
& 1¥earin;: ,\.ti/ls
1.td.
>heh J.
606 SUPREME COURT REPORTS [1964] VOL.
contract itself has or has not been frustrated; but in
the present case we arc not concerned about any dis·
pule relating to frustration of the contract.
The principle of the decision of the House
of Lords
in /1cy11tan
v.
Dancins Ltd. ('), on
which reliance was placed on behalf of the Union
has also no application. It was held in that case
that when an arbitration clause in a contract provides without any qualification that any difference or
dispute which may arise "in respect of" or "with regard to'" or "under the contract" shall be referred to
arbitration. and the parties arc at one in asserting
that they entered into a binding contract, the clause
will apply even if the dispute involves an assertion
by one party that circumstances have arisen, whether
before or after the contract has been partly performed, which have the effct:t of discharging one or both
parties from all subsequent liability under the contract, such as repudiation of thr contract by one party
accepted by the other, or fru,tration of the contract,
Viscount Simon, L.C., observed in that case :
"An arbitration clause is a written submission,
agreed to by the parties to the contract, ano,
like other written submissions to arbitration,
must be construed according to its language and
in the light of the circumstances in which it is
made. If the dispute is whether the contract
which contains the clause has ever been entered
into at all, that issue cannot go to arbitration
under the clause, for the party who denies that
he has ever entered into the contract is thereby
denying that he has ever joined in the submission.
Similarly, if one party to the alleged
contract is contending that it is void ab initio
(because, for example, the making of such a
contract is illegal), the arbitration claU1c cannot
operate, for on this view the clause itself also is
void.
But in a situation where the parties are
(I) L. R. [1942) A, C. SS6.
2 S.C.R. SUPREME COURT REPORTS
607
at one in asserting that they entered into a
binding contract, but a difference has arisen
between them whether there has been a breach
by one side or the other, or whether circums·
tances have arisen which have discharged one
or both parties from further performance, such
differences should be regarded as differences
which have arisen "in respect of," or "with
regard to" or "under the contract", and an
arbitration clause which uses these, or similar,
expressions should be construed accordingly."
But the Union is not seeking to go to arbitration on
a dispute between the parties about a breach committed by one side or the other or whether circumstances have arisen which have di;charged one or both
parties from further performance. It is a case in
which in substance there is no dispute between the
parties "under", "in connection with", or even "with
regard to" the contract. The plea raised by the
Union for stay of the suit was frivolous.
It is some·
what surprising that the plea should have been raised
and persisted in, and even after going to arbitration
in the other case have been brought up to this Court
involving large costs to the public exchequer.
The appeal therefore fails and is dismissed
with costs.
Appeal dismissed
19N
Union of India
v.
Birla Cotton Spinning
& rVeudng ,Wills
Lid.
,+.,'hah J.