ORIENT TRANSPORT CO. GULABRA AND ANOTHER. versus JAYA BHARAT CREDIT AND INVESTMENT CO. LTD. AND ANR.

Citation: [1988] 1 S.C.R. 47 · Decided: 07-09-1987 · Supreme Court of India · Bench: SABYASACHI MUKHERJI · Disposal: Appeal(s) allowed

Judgment (excerpt)

ORIENT TRANSPORT CO. GULABRA AND ANOTHER. 
A 
..-,;-
v. 
JAYA BHARAT CREDIT AND INVESTMENT CO., LTD., 
AND ANR . 
• 
SEPTEMBER 7, 1987. 
B 
[SABYASACHI MUKHARJI AND G.L. OZA, JJ.] 
+ 
Arbitration Act, 1940-Maintainability of suit for declaration 
under section 32 thereof-In respect of agreements/contracts relating to 
transaction of loan. 
~-
The appellant/plaintiffs filed a suit for a declaration that the eight c 
agreements/contracts executed between the appellants and the defen-
~ 
dant/respondent No. 1, were not 'hire-purchase agreements' but were 
agreements relating to the transaction of loan. The suit was dismissed. 
The appellate Court confirmed the decision of the Trial Court. There 
was a second appeal to the High Court, whereafter the appellants D 
moved this Court by special leave against the judgment and order of the 
High Court. 
Allowing the Appeal, the Court, 
' 
HELD: The suit had been dismissed on the ground that it was not 
E 
maintainable in view of the provisions of section 32 of the Arbitr11tion 
Act, 1940. Section 32 of the Act stipulates that notwithstanding 11ny law 
for the time being in force, no suit shall lie on any ground whatsoever 
for a decision upon the existence, effect or v11lidlty of an arbitr11tion 
agreement or award, nor shall any arbitration agreement or award be 
enforced, set aside, amended, modified or in any way affected otherwise 
F 
, 
than 11s provided in the Act. [49B-C] 
-\ 
Specific case of the appellants was that it wa• a transaction of loan 
and there was in fact no agreement of arbitration. It appeared from the 
plaint as well as the issues framed that the very existence of the agree-
ment described as hire-purchase agreement was put in issue. The execu· G 
lion of the documents was not denied but it was alleged that these were 
manipulated documents and that there were in fact n0 agreements 
~ 
which contained the arbitration agreement. [SOA-C] 
Section 32 of the Act does not contemplate the case of suits chal· 
lenging the validity of a contract because it contains an arbitration H 
47 
48 
SUPREME COURT REPORTS 
[ 19881 1 S.C.R. 
A clause. The section bas a very limited application, namely, where the 
existence of the validity of an arbitration agreement and not the con-
tract containing the arbitration agreement is challenged. [SOD-El 
Every person has a right to bring a suit which is of a Civil nature 
and the Court has jurisdiction to try all suits of Civil nature under 
B section 9 of the Code of Civil Procedure. That right bas not been taken 
away by section 32 of the Act. One of the issues, framed namely. issue 
No. 4 was "whether the defendant No. 1 obtained disputed hire-
purchase agreements from the plaintiffs in pursuance of its money lend-
ing business?" The existence of the disputed hire-purchase agreements 
was put in issue. It is true that the execution of an alleged document was 
C not in issue, but the existence of that document as an arbitration agree-
ment was in issue. Section 32 of the Act does not purport to deal with 
suits for declaration that there was never any contract or that the 
contract is void. This principle is well-settled. In State of Bombay v. 
Adamjee Hajee Dawood and Co., A.I.R. 19Sl Calcutta 147, the 
Calcutta High Court held that section 32 of the Act does not contemp-
D late the. case of a suit challenging the validity of a contract merely 
because it contains an arbitration clause. This is the correct position in 
law, and in the facts and circumstances of the case, the trial Court, the 
appellate Court and the High Court in this case were in error. Their 
judgments and orders were set aside. [SOE-H; SIA-Cl 
E 
State of Bombay v. Adamjee Hajee Dawood & Co., A.I.R 19Sl 
Cal. 147, referred to. 
CIVIL APPELLAlE JURISDICTION: Civil Appeal No. 2286 
of 1987. 
F 
From the Judgment and Order dated 17. 12.1986 of the Madhya 
\.
Pradesh High Court in S.A. No. 536 of 1985. 
'> 
V.M. Tarkunde, K.M.K. Nair for the Appellants. 
Mukul Mudgal for the Respondents. 
G 
The Judgment of the Court was delivered by 
SABYASACHI MUKHARJI, J. Special leave granted. 
This is an appeal from the judgment and order of the High Court 
H of Madhya Pradesh dated 17th of December, 1986. The appeal was 
+ 
ORIENT TPT. CO. v. J.B. CREDIT CO. [MUKHARJI, J.] 
49 
filed by the plaintiff whose suit for a declaration that the eight 
A 
agreements/contracts executed between it and the defendant No. 1 
M/s. Jayabharat Credit and Investment Company Ltd. were not

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