Holding

Section 35 does not apply; filing a suit to save limitation does not vitiate the arbitration, and the High Court was correct in refusing to stay the arbitration.

Summary

The National Agricultural Cooperative Marketing Federation of India Ltd. entered into two contracts with Swiss firm Alimenta S.A. for groundnut supplies, but a government export ban prevented performance. The first contract contained an arbitration clause, leading Alimenta to invoke arbitration through FOSFA, while the Federation challenged the arbitration in the Delhi High Court. To avoid limitation, the Supreme Court earlier permitted Alimenta to file money suits, which it did in multiple courts. The Federation then sought a stay of the arbitration under Section 35 of the Arbitration Act, 1940, arguing that parallel suits should preclude arbitration. The Bombay High Court refused the stay, and the Supreme Court upheld that decision, holding that Section 35 does not apply, that filing a suit to save limitation does not vitiate the arbitration, and that foreign awards are enforceable. Consequently, the High Court’s refusal to stay the arbitration was affirmed.

Issues considered

Whether Section 35 of the Arbitration Act, 1940 applies to stay arbitration when a party files a money suit to save limitation.
Whether filing a suit to save limitation vitiates the arbitration award or makes it invalid.
Whether the High Court was correct in declining to grant a stay of the arbitration proceedings.
Whether foreign arbitration awards are enforceable in India under the Foreign Awards (Recognition and Enforcement) Act, 1961.

Legislation cited

Arbitration Act, 1940s. 34, s. 35
Code of Civil Procedures. 151
Foreign Awards (Recognition and Enforcement) Act, 1961

Subjects

ArbitrationSection 35LimitationStay of arbitrationForeign award enforcementConcurrent proceedingsCivil court jurisdiction

Judgment

A NATIONAL AGRICULTUJ{AL COOPERATIVE MARKETING
FEDERATION OF INDIA LTD.
v.
ALIMENTA S.A.

OCTOBER 26, 1988
B
[SABYASACHI MUKHARJI ANDS. RANGANATHAN; JJ.]

Arbitration Act 1940, Section 35-Two contracts for supply .of
goods-One of the parties invoking arbitration clause-Arbitrator
appointed-Jn the meanwhile one of the parties obtaining permission of
Supreme Court to file money suit since claims getting barred by
c limitation-Money suits filed-Whether other party entitled to approach
Court and obtain stay of arbitration proceedings.

The petitioner signed two contracts, one on the 12th January, 1980
and the other on 18th August, 1980 for the supply of Indian H.P.S.
D Groundnut Kernels Javas to a Swiss Company. On 20th December,
1980 the petitioner informed the respondent not to nominate any vessels
to load goods as 'it were unable to get necessary clearance from the
Government, and by a telex message on 27th January, 1981 informed
the respondent that the goods could not be exported on account of
executive/legislative ban.

The respondent invoked the arbitration proceedings with the Fed·
eration of Oil Seeds and Fats As'l"ciation who informed the petitioner
on 6th March, 1981 by a letter of the appointment of an arbitrator. The
petitioner challenged the arbitration proceedings in the Delhi High
Court. On March 23rd, 1981 a stay order was passed restraining the
F arbitration proceedings, and on llth December, 1981 the High Court
held that no arbitration agreement existed with regard to the second
contract and as such nobody was entitled to seek reference to
arbitration.

,.
The petitioner filed a special leave petition to this Court. This {
G Court passed an interim order granting special permission to the re·
spondent to file a money suit in any court since the claims were getting ,
barred by time. Pursuant to this order the respondent filed a regular
money suit in a foreign court, and two identical suits in the Bombay
High Court for recovering damages, for which the written statements
were filed.
H
548
AGRICULTURAL FEDERATION v.ALIMENTA S.A. 549

The petitioner moved an application in one of the suits in the High
A
Court stating that in the interests of justice pending disposal of the three
suits an injunction should be granted restraining the parties from pro-
ceeding with the arbitration, and that the arbitration be stayed under
the principles of section 35 of the Arbitration Act, 1940. The High
Court granted interim injunction restraining the parties from proceed- ·
ing with arbitration. On 8th March, 1985, the High Court dismissed the B
notice of motion and held that this Court's order dated 2nd December,
. 1983 was clear, there was no abandonment of the pending arbitration
proceedings by- the respondent and therefore stay could not he granted.
This order was confirmed by the Division Bench in appeal.

In the S.L.P. to this Court the question was: whether the High
Court was right in declining to grant stay of the artlitration c
proceedings.

Dismissing the application,

HELD: 1. The High Court rightly held that Section 35 does not D
apply. [556A]

Sujant Singh v. Seth Mohinder Paul, AIR 1964 Punj 395 ref. to.

2. In particular facts and circumstances if a party filed a suit to
save limitation the same would not vitiate the award or make the award E
bad under s. 35 of the Arbitration Act. [555F]

3. Foreign awards automatically are not 'lifeless awards'. They
can be enforced in this Court in accordance with law. [556G I

Oil & Natural Gas Commn. v. Western Co. of N. America, AIR F
1987 SC 574 ref to.

4. Whether in a particular case it would be just and equitable to
the parties to direct them to proceed with the arbitration, must depend ·
upon the facts and circumstances of a particular case having regard to
the legal provisions applicable to a particular siru<ition. [556C-D] G

In the instant case, there is a valid arbitration agreement between
the parties. In view of the direction of this Court, the continuation of
the arbitration proceedings in respect of the filing of the. suit would not
be bad. In these circumstances if the court declined to exercise its
jurisdiction under section 151 Of the Code of Civil Procedure to grant H
550 SUPREME COURT REPORTS [1988] Supp. 3 S.C.R.

A stay of the proceedings of arbitration in London, the court has not acted
in excess of jurisdiction or has not exercised its jurisdiction improperly.
In such a situation the Appellate Court should not normally interfere.
In the premises, it would have been improper to exercise any jurisdic-
tion to interfere. [557B-C]

B VIC Tractoroexport, Moscow v. M/s Tarapore & Co. & Anr.,
[1970] 3 SCR 53; Serajuddin & Co. v. Michael Goldetz & Ors., AIR
1960 Cal •.47;1n re All India Groundnut Syndicate Ltd., [I945] 47 B.om.
L.R. 420 and.Ramji Dayawala & Sons (P) Ltd. v. Invest Import, [1981]
l SCR 899, referred to.

CIVIL APPELLATE JURISDICTION: Special Leave Petit.ion
c (Civil) No. 6536 of 1988.

From the Judgment and Order dated 26.4.1988 of \he Bombay
High Court in Appeal No. 431 of 1988.

D G. Ramaswami, Additional Solicitor General and Mukul
Mudgal for the Petitioner.

Anil B. Diwan, D.N. Misra, M.P. Bharucha and S.J. Vajifdar.
for the Respondent.

E The Judgment of the Court was delivered by

SABYASACHI MUKHARJI, J. This application for leave to
appeal is from the decision of the Division Bench of the High Court of
.Bombay, dated 26th April, 1988 . By the said decision. the Division
Bench summarily dismissed the appeal thereby affirming the order of
F 'the learned Single Judge of the High Court. On 12th January, 1980 the
petitioner herein signed what has been treated as the first contract with
the respondent for the supply of 5000 Mts. of Indian H.P.S. Ground-
nut Kernels Javas (hereinafter referred to as the said goods} for the
year 1979-80. The second contract in respect of the same was signed
for 4000 Mts. on 3rd April, 1980.
0
On 18th August, 1980 Since 31.00 Mts. of the remaining first
contract and total of 4000 Mts. of the second contract had not been
supplied; the contract was extended for the balance quantity for the
next crop season 1980-81. On 20th December, 1980 the petitioner
informed the respondent not to nominate any vessels to load goods as
H they were unable to get necessary clearance· from the Government.
AGRICULTURAL FEDERATION v. ALIMENTA S.A. [MUKHARJ!, J.] 551

The petitioner on 27th January, 1981 sent a telex informing the
A
respondent that the goods could not be exported on account of
executive/legislative ban on such exports.

On 6th March, 1981 the Federation of Oil Seeds and Fats Associ-
ation (FOSFA) informed the petitioner by its letter of the appoint-
ment of an arbitrator because of non-shipment due to Government's B
refusal. Thus the respondent invoked the arbitration proceedings with
FOSFA. On 19th March, 1981 the petitioner filed a petition in the
Delhi High Court challenging the arbitration proceedings by FOSFA.
The Delhi High Court on 23rd March, 1981 passed a stay order and
restrained the.arbitration proceedings by FOSFA. On 11th December,
198 l, the Delhi High Court held that no arbitration agreement existed
with regard to the second contract dated 3rd April, 1980 and as such c
none was entitled to seek reference to arbitration. It was further held
that vis-a-vis the first contract dated 12th January, 1980 there was an
arbitration clause existing. The National Agricultural Cooperative
Marketing Federation of India Ltd., filed a special leave petition in
this Court Of\ 1st April, 1982 challenging the decision of the Delhi D
High Court on the ground that there was no valid FOSFA arbitration
clause incorporated in the first contract dated 12th January, 1980. On
2nd December, 1983 ~his Cour~ passed an interim order granting
special permission to the respondent to file a money suit in any court
against the petitioner since the claims were getting barred by time. The
said order stated as follows: E

"The order of this court dated 30.4.1982 is modified to the
extent that Alimenta S.A. is at liberty to file suit again'st
N.A.F.E.D. in respect of its claims/disputes under the two
contracts dated 12. 1.1980 and 3.4.1980. It is directed that
such suit shall not constitute abandonment of the pending F
arbitrations instjtuted/commenced by Alimenta S.A.
against N.A.F.E.D. or in any manner prejudice the said
arbitrations or any awards made therein or the enforce-
ment thereof and shall not prejudice Alimenta's contention
in any of the cases."
G
On 17th December, 1983 the respondent filed a regular money
suit No. 488 of 1984 for an amount of US $1;70,39,544 (equivalent to
Rs. 17,93,93,440) and interest on the sum of US $11,23,500 (equivalent
to Rs. 11,23,35,000). Written statement was filed by the respondent
f'!!sipg s~v~ral qbjectiqns, inter alia, limitation, maintainability etc.
On Pf ~gqu\ 24\h ~J!ly, 1?~4, the respondent filed another identical suit Ji
552 SUPREME COURT REPORTS I1988] Supp. 3 S.C.R.
A in the Bombay High Court being Suit No. 2657/84 for recovering dam-
ages for which the written statement was filed on 20th March, 1984.
The respondent also filed another identical suit No. 1241 of l981 In the·
High Court on 21st March, 1985 for which also the written statement
was filed. The Supreme Court on 9th January, 1987 held that there was
a valid arbitration clause in the first contract dated !2. l.1980. In
B January, 1987 the respondents started arbitration proceedings in
respect of FOSFA contract dated 12.1.1980. In 1987, the petitioner's
Solicitor in London issued summons to restrain the London arbitra-
tion. The arbitrator thereafter affirmed that they would not proceed
with the arbitration until the petitioner's application for stay was
finally disposed of. The petitioner moved an application in suit No.
1241 of 1985 in the Bombay High Court stating that in the interests of
c justice pending disposal of the above three suits an injunction should
be granted restraining the parties from proceeding with the arbitration
and the arbitration be stayed under the principles of Section 35 of the
Indian Arbitration Act, 1940. On 2nd January, 1988 the Bombay High
Court granted an interim injunction restraining the parties from pro-
D ceeding with the arbitration. The learned Single Judge on 8th March,
1988 dismissed the notice of motion holding, inter alia; that this
Court's order dated 2nd December, 1983 set out hereinbefore was
clear and, therefore, stay could not be granted. There was an appeal to
the Division Bench.

E On 28th March, 1988 there was an interim order in appeal
No. 431 of 1988 permitting the respondent to seek clarification from
this Court regarding its order dated 2no December, 1983. This Court
disposed of the said application by stating that the Bombay High Court
might make its own order. As mentioned hereinbefore the Division
Bench of the High Court dismissed on 26th April, 1988 the appeal
F preferred from the decision of the learned Single Judge of that High
Court. Hence, the petitioner seeks leave to appeal to this Court.

The question concerned here is, whether the High-Court was
right. The High Court noted that it was an admitted position that
under the first contract the defendant therein being the petitioner
G herein, has supplied 1900 Mts while under the second contract the
defendant has not supplied anything. The High Court noted that the
petitioner has pleaded that the Government had not permitted supply
of any further materials to the plaintiff being the respondent herein.
The respondent is a Swiss Company. As per the contract the respon-
dent had initiated arbitration proceedings against the petitioner with
H the Federation of Oil Seeds and Fat Association (for brief called
AGRICULTURAL FEDERATION v. ALIMENTA S.A. [MUKHARJI, 1..1 553

· FOSFA London) in 1981 and had informed the petitioner by their
letter dated 10th March, 1981 for the appointment of an arbitrator on A
their behalf. The defendant had contended that there could not be any
such arbitration and, therefore, it filed a petition in the High Court
challenging the arbitration proceedings. The Delhi High Court on the
11th December, 1981 came to the conclu~lon that as regards the first
contract there was a valid arbitration agreement and as regards the B
second contract, there was no such arbitration agreement. In other
words; as re~ards the first contract the respondent herein could have
proceeded with the arbitration while with regard to the second con·
tract there was no question of referring the dispute to the arbitrator as
such. Both the parties had filed special leave petitions to this Court,
being 1755 of 1982 and 1756 of 1982 from the decision of the High
Court of Delhi. This Court admitted the petition but did not decide the C
matter immediately. In the meanwhile, the claim of the plaintiffs was
getting barred by law of limitation and, therefore, they moved this
Court for an early hearing. This Court instead of hearirig the petition
passed an order on 12th December, 1988 giving liberty to the respon·
dent to file suit in respect of its claims. It was further stated that filing D
of such a suit would not constitute abandonment of the pending arbit·
ration proceedings instituted or commenced by the respondent against
the petitioner. '

It is pursuant to this liberty that the respondent had filed suit
No. 488 of 198-1. Thereafter, without withdrawing the first suit but E
perhaps on the basis that there was some technical defect in the suit
according to the Bombay High Court, the respondent had filed a sec·
ond suit No. 2659/84 on 20th March, 1984, It had filed another suit
No. 12-11 of 1985 on the very next date. All these suits were pending in
the High Court of Bombay. The cause of action in respect of these
suits is the same. It has been stated that the present suit had been filed F
by way of an abundant caution and without prejudice to the rights and
contentions including the arbitration proceedings. As a result of this
decision the respondent started their arbitration proceedings from the
stage at which it had been stayed earlier but only in respect of the first
contract. The first notice of motion is for stay of these arbitration
proceedings on the ground that the present suit as also the other two G
suits are pending and there cannot be any multiplicity of the proceed·
ings in· respect of the· same cause of action. The High Court noted
· · further that in view of the decision of this Court giving it liberty to file
the proceedings the respondent was at liberty to proceed with the
arbitration proceedings in respect of the first contract and having
regard to this position it stated at the time of hearing of this petition H
!
'•

554 SUPREME COURT REPORTS [1988] Supp. 3 S.C.R.

before the High Court and also in its affidavit that it was giving up
A
claim in respect of the first contract.

The learned Solicitor General who had appeared in the Bombay
High Court on behalf of the petitioner, which was the defendant,
contended that it was not open to the respondent to forego a part of its
B claim. The learned Solicitor General had also argued that the cause of
action was one and it was not open to the respondent to split up its
cause of action. The High Court, however, ·did not find any substance
in that argument. The· High Court was of the view that there were two
claims arising out of the two contracts and the claims could easily be
segregated or separated and that was the reason that the High Court
held that the respondent could give up part of its claims which related
c to the first contract.

In our opinion, the High Court was right. Relying upon the
decision of this Court in VIC Tractoroexvort, Moscow v. Mis. Tara-
pore & Co. & Anr., [1970] 3 SCR 53, the learned Solicitor General had
D submitted before the Bombay High Court that though Section 35 of
the Arbitration Act, 1940 does not apply, the principles underlying the
same would apply and those principles were that arbitrators should not
proceed with arbitration side by side and in rivalry or in competition
with the Civil Court. It was further submitted before the High Court
that it can exercise cognate or similar powers possessed by it under
E Section 151 of the Code of Civil Procedure and should avoid the possi-
bility of conflict of decisions. Reliance was placed on a decision of the
Calcutta High Court in Serajudd[n & Co. v. Michael Goldetz &
Ors., AIR 1960 Cal. 47. In the said circumstance it was submitted that
the proper course was to restrain the plaintiffs from getting the matter
decided in London so long as the suit was pending and had not been
F disposed of. In view of the fact that the subject matter of the reference
was the same as in the pleadings of the suit, the public tribunal should
have precedence, it was submitted by the learned Solicitor General.

Reliance was also placed on the decision of India Groundnut
Syndicate Ltd., [1945) 47 Born. L.R. 420. ThOugh there was no aver-
G ment relating to inconvenience with regard to the contract or proceed-
ings in a foreign Contract learned Solicitor had relied on the decision
of this Court in Ramji Dayawala & Sons (P) Ltd. v. Invest Import,
!1981] 1 SCR 899, and submitted that it was more convenient for
adjudication in India then in London. In addition to this the high costs
of the arbitration and the restrictions on the availability of foreign-
H exchange were also highlighted before the High Court of Bombay, and
AGRICULTURAL FEDERATION v. ALIMENT AS.A. [MUKHARJl,J.] 555

in as much as the defence in action in India as also the arbitration in
A \·'.,,>
London was the same, and the evidence was the same and the entire
contract had to be performed by shipping the goods from India. There-
fore, it was submitted that it was not necessary that the parties should
be allowed to proceed with the arbitration in London. It was also
lj
!'>'

.12::
;

submitted that no prejudice would be caused to the respondent if they
are required to proceed with the present suit and not with the arbitra- B
tion proceedings. On behalf of the petitioner, however, it had been
contended that the respondent was interested in delaying the proceed-
ings somehow or the other. In support of this the petitioner brought to
the notice of th; High Court that in 1980 when the breach of contract
took place, the plaintiff instituted arbitration proceedings and the re-
spondent promptly filed petition in the Delhi High Court and got stay
of the arbitration proceedings. Thereafter, they Jost interest in the c
matter and the matter came to be decided by this Court and this Court
by its order dated 9. 1.1987 expressed and directed that the first con-
tract was subject to the arbitration agreement and there was no reason
why the defenda!1ts could not have proceeded with such arbitration. It
further appears that sometime in October, 1987 the petitioner had D
taken out an originating summons in the High Court of Justice in
London but the summons were not served on the respondent. The
arbitrators had given the directions that they would proceed and riot
wait any further. And it was upon this that the respondent had brought
the present proceedings in the Bombay High Court. The High Court
further felt that in view of the decision of this Court on 2nd December, E
1983 there was no abandonment of the pending arbitration proceed-
ings by the respondent.

It is well-settled that in particular facts and circumstances if a
party files a suit to save limitation the same would not vitiate the award
or make the award bad under Section 35 of the Arbitration Act. Refe- F
rence in this connection may be made to the observations of the
Punjab and Haryana High Court in Sujant Singh v. Seth Mohinder
~
Paul, AIR 1964 Punj 395. The High Court felt that in the facts and
""' circumstances of this case Section 35 of the Arbitration Act does not
~ apply, which postulates that neither any reference nor any award shall
·i
be rendered invalid by reason only of the commencement of the legal G
proceedings upon the subject-matter of the reference but when the
legal proceedings upon the whole subject-matter of the reference have
been commenced between all the parties to the reference and notice
has been given to the arbitrator or the umpire, all further proceedings
l in a pending reference shall unless a stay of proceedings is granted
\I! under Section 34, be invalid. Tl,e High Court held, and in our opinion H
556 SUPR!l:Mll COURT RllPORTS [1988) Supp. 3 S.C.R.

A rightly, that Section 35 does not apply. Tho order of th!N Court set out
hercinbefore clenrly pennlts the contlnuathm of lo3nl proceodlnsN In
suit nnd cannot operate to nullify the nrbltrntlon proceedings In
London. The High Court, therefore, declined to grnnt stny of the
orbltrntion proccedlngR. Wus the High Court right, is the question in
this application.

Reliance wns plnced by the lenrned Addltkinal Solicitor General
Mr. 0. Rnmnswnmy before us on n decision of thla Court In Oil &
Natural Gas Commn. v. We~tem Co. of N. America, AIR 1987 SC 674
for the proposition that in n Nltuation of the present type It would be
improper to ask the petitioner to go on with the arbitriitlon In London.
C The facts there were entirely different from the facts before us. Section
IS 1 of the Code of Civil Proccdul'c on tho bals of which and on the
prlnclplo of which stay of proccedlnas in London wns sought, arc woll·
settled and these principles are whether inn pnrtlc11lnr case it would be
just and equitable to the parties to direct them to proceed with the
arbitration, must depend upon the facts and circumstances of a
D particular case having regard.to the legal provisions applicable to a
particular situation. In the decision referred to:herolnbofore this Court
took into consideration the fact that there was an application under
Sections 30 & 33 of the Arbitration Act for setting aside the awards
rendered by the umpire in that case and that there was a possibility of
the award rendered by the Umpire being stayed by the Indian court.
E This Court also took into consideration that in that event an extremely
anomalous situation would arise inasmuch as the successful party the
Western Company might well have recovered the amount awarded as
per the award from the assets of the losing party in U.S.A. after
procuring the judgment in terms of the award from the U.S.A. court.
Such possibility of damage and danger is absent in the present case. In
F the said decision before this Court by the contract therein the Indian
courts had exi;lusive jurisdiction and it would, however, be improper
to proceed on the basis that the Indian courts have exclusive jurisdic-
tion to affirm or set aside the award in terms of the proper law of the
contract, or in terms of the actual contrast between the parties.
Foreign awards automatically are not 'lifeless awards'. They can be '
~ '
G enforced in this country in accordance with law. See in this connection
the Foreign Awards (Recognition and Enforcement) Act, 1961.

Furthermore, unlike the case of Oil & Natural Gas Commission
this is not a case of restraining the respondent from proceeding in a
foreign court. This is a case of binding the parties to their bargain for (
1-J going to the.arbitration. The learned Single Judge of the High Court in
~

AOR!CULTURAL FEDERATION v. ALIMllNTA S.A. IMUKHARJI, J.J 557

the instant case had taken into account all the relevant facts. It had A
considered the contract of the parties, the arbitration agreement, the
statement made on behalf of the respondent and had thereafter cxer·
ciscd its jurisdiction not to stay the proceedings of arbitration in rela-
tion to the first contract. There is a valid arbitration agreement IJl:t·,
ween the parties. In view of the direction of this Court, the continub-
tion of the arbitration proceedings in respect of the filing of the suit B
would not be bad. In those circumstances if the court declined to
exercise its jurisdiction under Section 151 of the Code of Civil Proce-
dure to grant stay of the proceedings of arbitration in London,. the
court, in our opinion, has not acted in excess of jurisdiction or has not
a
exercised its jurisdiction improperly. In such situation the Appellate
Court should not normally interfere. In the premises, it would have c
been improper to exercise any jurisdiction to interfere. See the obser-
vations of this Court in Ramji Dayawala & Sons (P) Ltd. (supra).
There will be no stay of the arbitration in relation to the first contract
only.

In the oremises, it would not be proper fon1s to interfere with D
the judgment of the Division Bench of the High Court. The applica-
tion, therefore, fails and is accordingly dismissed.

N.V.K.