Case Note & Summary
The case involved two appeals by special leave filed by Food Corporation of India against two orders of the Madras High Court staying suits under Section 34 of the Arbitration Act, 1940. The Corporation had chartered two ships belonging to Thakur Shipping Co. Ltd. and Great Eastern Shipping Co. Ltd. to carry rice from Thailand to India. The charter-party agreements contained clause 42, which provided for arbitration by two arbitrators, one nominated by the owners and one by the charterers, with an umpire deciding if they disagreed. The bills of lading incorporated the Indian Carriage of Goods by Sea Act, 1925, and contained a one-year time limit for filing suit. After the ships arrived and discharged cargo at Tuticorin port in August and September 1969, the Corporation made claims for short delivery and damage to rice. In one case, the Corporation sent telegrams in July 1970 to the ship's operating managers and later to the owner, proposing reference to a sole arbitrator and urging urgency, but received no reply from the owner. In the other case, the Corporation's clearing agents wrote letters to the steamer agents regarding claims, and the agents repeatedly replied that they had referred the matter to principals and would revert, but no substantive response followed. As the limitation period was about to expire, the Corporation filed two suits in the Court of the Subordinate Judge at Tuticorin on August 31, 1970 and August 14, 1970, respectively, for recovery of amounts. The first defendants in each suit, the ship owners, applied under Section 34 for stay of the suits. The trial court rejected both applications, holding that the defendants had taken no steps for arbitration despite being urged to do so and thus were not ready and willing. On appeal, the Madras High Court reversed, characterizing the trial court's decision as perverse and staying the suits. The Corporation then appealed to the Supreme Court. The core legal issue was whether the respondents were ready and willing to do all things necessary for the proper conduct of arbitration within the meaning of Section 34. The Corporation argued that silence and inaction demonstrated unwillingness, particularly when claims were about to be time-barred, and that the trial court's factual finding should not be disturbed. The respondents contended that there was a valid arbitration agreement and that mere silence did not prove unwillingness; they also argued that the Corporation's proposal for a sole arbitrator was a deviation from clause 42. The Supreme Court, speaking through Gupta J., allowed the appeals. It held that under Section 34, an applicant must show readiness and willingness both at the time of the application and at the commencement of proceedings. The Court observed that silence in the face of repeated requests, especially when legal proceedings were about to be barred by time, was a positive gesture of unwillingness, not mere inaction. It noted that in one case the respondent sent evasive replies, and in the other it remained completely silent despite the Corporation's repeated urgings. The Court found that the trial court's conclusion that the respondents were not ready and willing was not arbitrary or perverse, and the High Court erred in reversing it. The Supreme Court relied on Anderson Wright Ltd. v. Moran and Company and set aside the High Court orders, restoring the trial court's rejection of the stay applications and allowing the suits to proceed.
Headnote
A) Arbitration Law - Stay of Legal Proceedings - Section 34, Arbitration Act, 1940 - Readiness and willingness at commencement - An applicant for stay must satisfy the court that not only is he ready and willing at the time of the application but also was ready and willing at the commencement of legal proceedings to do all things necessary for proper conduct of arbitration - In both appeals, respondent shipping companies remained silent or gave evasive replies to the Corporation's repeated requests for arbitration, while limitation was about to expire - Held that silence and inaction were positive gestures of unwillingness, and the trial court's finding of non-readiness was correct (Page 150F-G; Page 151E-F; Page 152A-C). B) Arbitration Law - Conduct of Parties - Silence and inaction as unwillingness - Where a party to an arbitration agreement chooses to maintain silence in the face of repeated requests by the other party to take steps for arbitration, the case is not one of mere inaction; failing to act when called upon is a positive gesture signifying unwillingness or want of readiness to go to arbitration, especially when legal proceedings in court were about to be barred by time - One respondent sent evasive replies, and the other remained silent despite a proposal for sole arbitrator that deviated from clause 42 - Held that if the respondent was ready and willing, it would have replied objecting to any departure from the arbitration clause, but its total silence justified the inference of unwillingness (Page 151G; Page 152A-C). C) Appellate Review - Perverse Finding - High Court's power to reverse trial court's factual determination - The trial court found as a fact that the respondents were not ready and willing to go to arbitration at the time of institution of suits; silence and inaction justified that inference - The conclusion was not arbitrary or perverse, and the High Court was wrong in characterizing it as such - Held that the High Court erred in reversing the trial court's decision and allowing the stay applications (Page 152C).
Issue of Consideration
Whether the first respondent in each of the two appeals was ready and willing to do all things necessary for the proper conduct of the arbitration as required by Section 34 of the Arbitration Act, 1940, and whether the High Court erred in reversing the trial court's finding of fact as perverse.
Final Decision
Appeals allowed; High Court orders set aside; trial court's rejection of stay applications restored; respondents not ready and willing under Section 34, so suits could proceed.
Law Points
- Under Section 34 of Arbitration Act
- 1940
- an applicant for stay must prove readiness and willingness at commencement of proceedings
- silence and inaction in response to repeated requests
- especially when limitation imminent
- is positive gesture of unwillingness
- High Court cannot overturn trial court factual finding as perverse unless arbitrary or perverse
- party seeking stay must remain ready and willing to do all things necessary for proper conduct of arbitration
- deviation from arbitration clause by other party does not excuse silence.
