RAMJI DAYAWALA & SONS (P) LTD. versus INVEST IMPORT

Citation: [1981] 1 S.C.R. 899 · Decided: 09-10-1980 · Supreme Court of India · Bench: P.N. SHINGAL · Disposal: Appeal(s) allowed

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Judgment (excerpt)

,,, 
RAMJI DAYAWALA & SONS (P) LTD. 
v. 
INVEST IMPORT 
October 9, 1980 · 
[P. N. SHINGHAL AND D. A. DESAI, JJ.] 
Arbitration Act 1940, S. 34; Code of Civil Procedure 1908, S. 15; Arbi-
tration (Protocol and Convention) A ct 1937, S. 3 ; & Foreign Awards (Recog-
nition & Enforcement) Act, S. 3-Sub-contract between Indian .firm and foreign 
firm-Sub-contnact incorporating .an agreement to re.fer disputes to a foreign 
arbitral tribunal-After execution 
o~ agreement Indian firm repudiating the 
arbitration agreement-Suit for re'C:overy in High Court by Indian firm-Foreign 
firm contesting that suit to be stayed on account of arbitration clause in the 
agreement-Single Judge and Division Bench deciding stay of suit necessary-: 
Decision-Whether valid-power of court to stay suit-Exercise of discretion 
by trial court-Interference by appellate court. 
The appellant (plaintiff), a private limited company, a labour contractor, 
entered into a sub-contract with the respondent (defendant), a Yugoslavia based 
company which in turn had entered into a contract with the State Electricicy 
Board for setting up a power station. 
The sub-contract dated July 10, 1961 
between the appellant and the respondent incorporated a·n agreement to refer 
~ll the disputes arising out of the sub-contract to arbitration by the Inter-
national Chamber of Commerce in Paris 
with the 
application of Yugoslav 
materials and economical law. 
In carrying out the work undertaken under 
the sub-contract, the appellant claimed that it carried out some extra work 
for which it was entitled to recover extra amounts from the respondent, and 
as the claims were not satisfied or met with by the respo~dent, the appellant 
filed a civi\ suit on the original side of the High Court for recovery of the 
amount. 
On .a notice of motion taken out by the appellant, the High Court 
granted an ad interim exparte injunction restraining the respondent from with-
drawing the money due to it from the State Electricity Board. 
Pursuant to service of the aforesaid notice of motion' the respondent moved 
an application under sec. 151 of the Code of Civil Procedure, alleging in the 
petition for stay that the disputes and differences that arose were in respect 
of and/or relating to the sub-contract dat,ed July 10, 1961 and in view of the 
subsisting agreement to refer disputes or differences arising under or out of 
the sub-contract to arbitration, the suit filed by the appellant should be stayed. 
The appellant filed a counter-affidavit contending that there was no concluded 
agreement" between the parties to refer all the disputes arising out of the sub-
contract to arbitration and alleged that by letter dated July 10, 1961, the very 
date on which the sub-contract was entered into at Belgrade, the Managing 
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SUPREME COURT REPORTS 
[1981] 1 S.C.R. 
Director of the appellant company informed the respondent that he had ob-
jected to the arbitration clause in the agreement. It was also averred that a 
cable was also sent by the Managing Director on reaching Bombay on July 13, 
1961 requiring that the clause regarding arbitration be deleted. Second con-
tention was that even if it is held that there is a subsisting arbitration agree-
ment, having regard to all the circum&tances of the case, the discretion should · 
not be exercised in favour of· the defendant-respondent. 
The Single Judge granted !he P<ctition of the respondent and stayed fur-
ther proceedings in the suit filed by the appellant, and vacated the ad interim 
injunction granted in favour of the appellant. 
The appellant preferred two appeals. 
One against the order of the single 
Judge granting stay of the suit of th'e appellant and the other against the order 
vacating the ad in•terim injunction. A Division Bench of the High Court dis-
missed both the appeals by a common judgment holding that there was a 
valid subsisting arbitration 
agreement between the parties and that it was 
binding on both. It also held that the claims made· by the appellant in the 
suit arose• out of the sub-contract which included the arbifration agreement 
and, therefore, the appellant must be bound by the bargain undertaken by 
him. · It negatived the appellant's contention that on the facts and circum-
stances of the case discretionary relief of grant of stay of suit would cause 
irrepairable hardship and deny justice. 
In appeal to this Court against the order of stay of the suit 

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