The question under this application is whether this suit should be stayed under section 34 of the Arbitration Act, 1940. This question has arisen in this way : On 25th February 1965, the parties entered into a contract whereby the defendants had to roll and supply to the plaintiffs steel structurals including short length angles. This agreement is Annexure 'A' to the plaint. Some time in August 1967, fifty tons of short length angles supplied by the defendants were rejected by the plaintiffs. The defendants were asked to replace these angles immediately. But they had no steel billets in their possession, and, accordingly, it is alleged, the plaintiffs loaned 51/867 metric tons of M. S. billets to the defendants, which were returnable to the plaintiffs on receipt by them of their consignment from abroad. It is stated that the defendants in fact did not return the M. S. billets.
Consequently, the plaintiffs have brought this suit for return of the M. S. billets and, in the alternative, for payment of its price amounting to Rs, 72,613.80 at the rate of Rs, 1,400.00 per metric ton. The defendants made an application under section 34 of the Arbitration Act, 1940, for stay of the suit on the contention that the contract between the parties provided for adjudication of disputes between them by arbitration. The plaintiffs' reply to this is that the suit is based, not on the contract, which is Annexure 'A' to the plaint, but on the defendants' promise made about the end of January 1969 to return the M. S. billets loaned to them by the plaintiffs as af.resaid. Mr. Ashfaq Hussain contended that this promise constituted a new contract between the parties which was not covered by the arbitration clause in the contract dated 25th February 1965. I am unable to accept Mr. Ashfaq Hussai'ns contention. Article 17 of the contract, dated 25th February 1965 specifically provides that the defendants shall roll the contracted items either from M. S. billets procured from their own sources or from M. S. billets to be supplied by the purchaser, in which latter case the price of the manufactured material was to be calculated according to the formula contained in this article, that is, against the price of the contracted items, the price of M. S. billets together with customs duty and sales tax thereon was required to be adjusted. Thus, the contract in clear terms makes provision for supply of M. S. billets by the plaintiffs to the defendants, and the price of the billets so supplied had to be calculated and adjusted in the manner provided in Article 17 of the contract between the parties. Mr. Ashfaq Hussain, however, argued that the defendants promised to return the M. S. billets rather than adjust its price against the contracted items, and therefore the original contract stood modified, or a new contract was substituted therefor. However, on a specific query from the Court as to what would be the remedy of the plaintiffs if the defendants failed to return the M. S. billets, Mr. Ashfaq Hussain agreed that in that case the defendants would be under obligation to pay the price of the M. S. billets. But, according to him, this price was not to be calculated in the manner provided for in Article 17, but at the rate of Rs, 1,400.00 per metric ton as dimmed in the suit. In my opinion, the defendants' promise to return the M. S. billets can in no way be said to constitute a new contract or even to modify the provisions of the contract, dated 25th February 1965. The contract made provision for supply of M. S. billets by the plaintiffs to the defendants, and it cannot be denied that 51/867 metric tons of M. S. billets were in fact supplied by the plaintiffs to the defendants under this provision of the contract. If so, then the dispute between the parties is covered by the arbitration clause, which is contained in Article 26 of the contract between the parties. Even if it be assumed that the contract dated 25th February 1965 stood novated or modified by the defendants' promise to return the M. S. billets rather than adjust its price against the contracted items, this would not lead to the abrogation of the arbitration clause, which is in very broad and wide terms, as is evident from the following language used in this clause : "In the event of any dispute arising on any matter connected with this Agreement it will be submitted to an Arbitrator if both parties agree to his designation otherwise it will be submitted to a Tribunal of 2 Arbitrators--one nominated by the Purchaser and the other by the Suppliers."
It cannot be denied that the dispute between the parties is essentially connected with the agreement, dated 25th February 1965. The quantity of M. S. billets, mentioned above, was loaned by the plaintiffs to the defendants under the provisions of this contract. Notwithstanding the alleged modification or novation of the contract, the arbitration clause would, in my opinion, survive. Mr. Shaikh Muhammad Shafi brought to my notice some cases, the rule in which, according to him, would apply to the present case also. The first of these cases is Heyman and another v. Darwin Limited where the arbitration clause, which was in the same wide and broad terms as the arbitration clause contained in Article 26 of the contract before me, was held to survive the frustration of 'the contract or the repudiation of the contract, which repudiation by one party was accepted by the other party. This decision was followed in a Full Bench decision of the High Court of Lahore in Firm Karam Narain Daulat Rain and another v. Messrs Volkart Bros. and another in which it was held that the arbitration clause in a contract can be regarded as a thing apart from the main conditions of a contract. In other words, the arbitration clause is severable from the remaining contract and would survive frustration of the contract itself. The same view was followed in another English case, Woolf v. Collis Removal Service . Mr. Shaikh Muhammad Shafi also referred to a Calcutta decision, Rungta Sons (Private) Ltd. v. Jugometal Trg. Republike and another in which it was held that the arbitration clause was not superseded even if the parties substituted a new contract for the old contract or entered into new arrangement which, in fact, modified or novated the terms of the old contract. Mr. S. Ashfaq Hussain, on his part, placed reliance on the Dacca decision, Maganlal Jhawar and others v. Messrs M. R. Khan and Co. (Jute) Ltd. . But in my opinion the rule in this decision is not at all applicable. Though there was an arbitration clause in1 2 3 4 5 the contract, which was the subject-matter of this decision, yet the parties, by a subsequent agreement, made provision for a different forum of settlement of disputes between them, that is, they agreed to accept settlement of differences given by a third party. In the Dacca decision, therefore, the arbitration clause itself was superseded or abrogated by a subsequent arrangement for settlement of differences between the parties by a different forum altogether. In the instant case, it cannot be said that the parties entered into any arrangement to supersede the arbitration clause on the strength of the defendants' promise to return the M. S. billets loaned to them by the plaintiffs rather than adjust its price against price of the contracted items in accordance with Article 17 of the contract.
2. The conclusion of the above discussion is that the arbitration clause contained in the contract between the parties remains intact. Except the points of Mr. S. Ashfaq Hussain noted above, no other reason has been shown to me as to why the Court should not proceed under Section 34 of the Arbitration Act, 1940. Accordingly, I would accept the defendants' application under this section and stay the proceedings in this suit and direct the parties to have recourse to the arbitration clause contained in the contract between them. 1942 A C 356 AIR 1946 Lah. 116 (1948) 1 K B 11 AIR 1959 Cal. 423 PLD 1968 Dacca 361