The Barium Chemicals Ltd. vs Bombay Industrial and Chemical Company, Bombay

S.H. Sheth, J.—Plaintiff filed the present suit against two defendants for recovering a sum of Rs. 34, 230.38 p. It was averred that out of that amount a sum of rupees ten thousand was recovered from both the defendants. In that suit the second defendant made an application u/s 34 of the Arbitration Act to stay the suit and direct the parties to refer the dispute to arbitration as there was an arbitration clause in the agreement between the parties. It may be stated that the second defendant was the sole selling agent of the plaintiff and that the plaintiff had sold the goods to the first defendant through the second defendant. It was contended on behalf of the plaintiff that since the first defendant was not a party to the agreement the arbitration clause could not be invoked against him and that no reference of the dispute could be made to arbitration.

The learned trial Judge negatived that contention and allowed the application. By his order he stayed the proceedings u/s 34 of the Arbitration Act and directed the parties to seek adjudication of the dispute by taking the matter to arbitration within the meaning of clause 13 of the agreement concluded between the plaintiff and the second defendant. It is that order which is challenged by the plaintiff in this appeal.

The impugned order cannot be sustained in law. Goods were sold by the plaintiff to the first defendant. Therefore the amount which was due as a result of that transaction was primarily recoverable from the first defendant. The second defendant came into the picture because he was the sole selling agent of the plaintiff. There was no agreement between the plaintiff and the first defendant, secondly the first defendant was not a party to the agreement which contained the arbitration clause. It was an agreement between the plaintiff and the second defendant. The first defendant is therefore not bound by that agreement and the dispute between the parties cannot therefore be referred to arbitration so far as the first defendant is concerned.

The learned trial Judge was in error in taking the view that since the first defendant was residing within the sole selling agency area of the second defendant, the first defendant was bound by the agreement executed between the plaintiff and the second defendant. It is beyond our imagination to think that all those who reside within the sole selling agency area of a sole selling agent will be bound by the agreement executed between the principal and the sole selling agent. There cannot be a more absurd view than the one which the learned trial Judge has taken. Therefore so far as the first defendant was concerned, the dispute between the parties could not be referred to arbitration and the suit could not be stayed u/s 34 of the Arbitration Act.

So far as the second defendant was concerned really there was no claim against him. However even if there was one the dispute between the plaintiff and the second defendant could not be referred to arbitration because the suit in which a single claim is made against defendants 1 and 2 cannot be split up and the dispute as against one cannot be referred to arbitration while it is tried against another by the Court. Therefore the dispute between the parties cannot be referred to arbitration on account of the fact that the first defendant is not a party to the arbitration agreement. The view that the suit cannot be split up between one who is a party to the agreement and one who is not a party to it is supported by the decisions of the Calcutta High Court in Asiatic Shipping Co. (Private) Ltd. Vs. P.N. Djakarta Lloyd and Another, and also of Nagpur High Court in C. H. O. & C. S. Co. v. Brinjnath Singhji (AIR 1956 Nag 61).

The learned trial Judge was therefore in error in staying the suit u/s 34 of the Arbitration Act and directing the parties to refer the dispute to arbitration.

In the result we allow the appeal, set aside the impugned order and direct the learned trial Judge to proceed with the suit on merits according to law. No costs.

Appeal allowed.