GAYA ELECTRIC SUPPLY CO. LTD versus THE STATE OF BIHAR

Citation: [1953] 1 S.C.R. 572 · Decided: 03-02-1953 · Supreme Court of India · Bench: MEHR CHAND MAHAJAN · Disposal: Appeal(s) allowed

Judgment (excerpt)

57'2 
SUPREME COURT REPORTS 
(1953] 
195a 
GAYA ELECTRIC SUPPT1Y CO., LTD. 
Feb. 8. 
V. 
• 
THE STATE OF BIHAR. 
[MEHR CHAND MAHAJAN, DAS, and GHULAM 
HASAN JJ.] 
Indian Arbitration Act (X of 1940), s. 34-Contract containing 
arbitration clause-Rescissio1~ of contract and suit by one party-
Application for stay of rnit-Scope of arbitration clause-Construc-
tion of cla«se. 
If the arbitration agreement is broad and comprehensive and 
embraceEI' any dispute between the parties in respect of the agree-
ment, or in respect of any provision in the agreement, or in res-
pect of anything arising out of it, and one of the parties seeks to 
avoid the contract, the dispute is referable to arbitration if the 
avoidance of the contract arises out of the terms of the contract 
itself. 
Where, however, the party seeks to avoid the contract for 
reasons dehors it, the arbitration clause cannot be resorted to as 
it goes along with other terms of the contract. In other words, 
a party cannot rely on a term of the contract to repudiate it and 
still say the arbitration clause should not apply. 
Where, however, an arbitration clause is not so comprehen· 
sive and is not drafted in the broad language namely "in respectt 
of" any agreement, or "in reSpect of something arising out of it", 
that proposition does not hold good. 
The arbitration clause is a 
written submission agreed to by the parties in a contract and like 
every written submission to arbitration must be considered 
according to its language and in the light of the circumstances 
in which it is made. 
Disputes which arose between the State of Bihar and an 
Electric Supply Company whose licence bad been revoked by the 
State were settled by an agreement which provided that the State 
should make an advance payment of Rs. 5 lakbs to the company, 
'<nd the company should hand over the undertaking to the State. 
The undertaking was to be valued within 3 months and if any 
money was'found due to the company as per the Government 
valuation over 5 lakbs it will be paid to the company and if the 
valuation \Vas less than 5 lakhs the company would refund the 
excess received by it. 
The agreement contained an arbitration 
clause which ran as follows: '' In the case of any difference or dis-
pute between the parties over the valuation as arrived at by the 
Government and that arrived at by the company any such difference 
or dispute including the claim for additional compensation of 20% 
shall be referred to arbitration." 
The company instituted a suit 
against the State alleging that the State had failed to make its 
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s.6.R. 
SUPREME COURT REPORTS 
573 
valuation and to make payment of the excess within the time 
1953 
fixed and as time was of the essence of the contract, it had res-
cinded the agreement, and praying for a declaration that the Gaya Electric 
undertaking belonged to it, for damages and appointment Qf a Supply Co., Ltd. 
receiver. The State applied under s. 34· of the Arbitration Act 
v. 
for stay of the suit:. 
The State of 
Held, that the scope of the arbitration clause was very 
Bihar. 
narrow; it conferred jurisdiction on the arbitrator only on the 
question of valuation of the undertaking pure and simple . 
Questions relating to the breach of contract or its rescission were 
outside the scope of the clause and the suit could not be stayed 
under s. 34. 
Heyman v. Darwins Ltd. ([1942] A.O. 356) referred to. 
Harinagar 811,gar 111.ills Ltd. v. Skoda (India) Ltd. (A.LR. 1948 
Cal. 230) 'and Governor-General in Council v. Associated Livestock 
Farrn, Ltd. ([1937] 41 O.W.N. 563) distinguished. 
CIVIL APPELLATE JURISDICTION: 
Civil Appeal 
No. 175 of 1951. 
Appeal by Special Leave from the Order and 
Decree dated the 30th March, 1-051, of the High 
Court of Judicature at Patna (Ramaswami and Rai 
JJ.) in Miscellaneous Appeal No. 19 of 1951 arising 
out of the Order dated the 18th December, 1950, of the 
Court of the Additional Sub-Judge· Second at Gaya 
in Title Suit No. 47 of 1950. 
N. 0. Chatterjee (Rameshwar Nath, with him) for the 
appellant. 
M. 0. Setalvad, Attorney-General for India, and 
Mahabir Prasad, Advocate-General of Bihar (R. J. Um-
\ 
rigar with them) for the respondent. 
1953. 
February 3: The Judgment of the Court 
was delivered by 
MAHAJAN J.-This appeal by special leave arises 
out of an application made by the State of Bihar 
against the Gaya Electric Supply Co. Ltd. under 
section 34 of the Indian Arbitration Act for stay of

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