Supreme Court Dismisses Appeal by Tramway Company in Arbitration Clause Dispute Under Calcutta Tramways Act, 1951. The Court Held That the Proviso to Section 5 Saved Both the Corporation's Right to Sums Payable and the Procedural Remedy of Arbitration, Rejecting the Argument That the Government Alone Could Enforce Arbitration.

Civil appeal by special leave against a High Court order holding that a valid arbitration agreement existed between the appellant and the respondent.

The appellant sought a determination that there was no valid arbitration agreement between the appellant and the respondent, and incidental reliefs; the respondent sought to enforce the arbitration reference for the track rent dispute.

Disputes arose regarding track rent payable by the appellant to the Corporation under tramway agreements. After the Calcutta Tramways Act, 1951 substituted the Government for the Corporation, the appellant contended that the Corporation could not invoke the arbitration clauses and filed an application in the High Court.

A.N. Ray, J. of the Calcutta High Court held that there was an agreement between the appellant and the respondent, that the appellant was a party to the arbitration clauses, that the respondent could make a reference to arbitration in terms of the agreements, and that the reference to the arbitrators was valid, legal and effective.

Whether the Corporation of Calcutta could rely on the arbitration clauses of the tramway agreements after the Government was substituted as a party under Section 5 of the Calcutta Tramways Act, 1951. Whether the proviso to Section 5 saved both the substantive right to sums payable and the procedural right to arbitration.

The appellant argued that all rights of the Corporation of Calcutta under the various agreements stood transferred under the Tramways Act, 1951, and vested in the Government of West Bengal except only in regard to the sums payable to the Corporation, and therefore the Corporation could not rely on the arbitration clauses or refer disputes regarding sums payable to arbitration. The respondent contended that the proviso to Section 5 preserved the agreements in respect of sums payable to the Corporation, including the arbitration procedure, and therefore the Corporation could validly refer the track rent dispute to arbitration.

The proviso to Section 5 of the Calcutta Tramways Act, 1951, by necessary implication, saved both the substantive right to sums payable under the agreements and the procedural right to have disputes regarding those sums referred to arbitration. Substantive and procedural rights are interconnected and not severable; to preserve the substantive right while withholding the procedural remedy is to save the right and deny the remedy.

The substantive right to the payment of rent and the procedural one to have any dispute arising in respect of that right referred to arbitration embodied in the agreements are interconnected and are not severable. To preserve the substantive right and to withhold the procedural right to enforce it is to save the right and to deny the remedy. The proviso in terms as well as by necessary implication brings the subject-matter of the sums payable under the agreements both under the substantive and procedural aspects within the scope of the said exception.

On or about October 2, 1879, the Corporation of the town of Calcutta entered into an agreement with the grantees for the right to construct, maintain and use tramways in Calcutta, containing an arbitration clause. Subsequent agreements were entered into on November 22, 1879, September 2, 1893 and December 9, 1899, all containing similar arbitration clauses. On August 30, 1951, the State of West Bengal entered into an agreement with the appellant to purchase the appellant's undertaking, subject to ratification by legislation. The Calcutta Tramways Act, 1951 (W.B. Act XXV of 1951) was passed and came into effect on October 18, 1951, substituting the Government of West Bengal for the Corporation of Calcutta under the various agreements, subject to the proviso that sums payable under the agreements would continue to be payable to the Corporation. Disputes arose as regards track rent payable by the appellant to the Corporation, and the dispute was referred to arbitration in accordance with the arbitration clause. The appellant nominated its arbitrator without prejudice and filed an application on January 7, 1963, in the Original Side of the Calcutta High Court for determination of the validity of the arbitration agreement. A.N. Ray, J. held that there was a valid agreement, the appellant was a party to the arbitration clauses, and the reference to arbitration was valid, legal and effective. The appellant appealed by special leave to the Supreme Court, which dismissed the appeal with costs on March 12, 1965.

• Calcutta Tramways Act, 1951 (W.B. Act XXV of 1951): 3, 4, 5, Second Schedule