Case Summary: Seth Mohan Lal v. Grain Chambers Ltd. (1967)

• Citation: AIR 1968 SC 772

• Court: Supreme Court of India

• Judges: J.C. Shah, V. Ramaswami

• Date of Judgment: 15 December 1967

FACT:

Facts of the Case:

• Seth Mohan Lal and Grain Chambers Ltd. entered into an arbitration agreement.

• A dispute arose between them, and Mohan Lal applied to appoint an arbitrator under Section 20 of the Arbitration Act, 1940.

• The Grain Chambers Ltd. objected, arguing that the arbitration clause was no longer valid due to prior breach of contract and conduct of parties.

The respondent company was formed for carrying out specific business that relates with the exchange of commodities that included . The Articles of association of the company made it compulsory for all the members in the company to participate in the company’s business transactions. The company’s transactions were carried out based on the 1913 Companies Act which did not contain any prohibition against the entering of a director into transactions with the company. The Act was amended

in 1936 which prohibited directors from entering into transactions with the company; this did not change the Company’s mode of operation. The appellant company had entered into a transaction with the respondent and had made huge deposits in monetary terms to the account of the respondent in respect to the transaction. The Indian government had on February 15, 1950 issued an order that prohibits any person from entering into transactions on ‘future’ in gur or make or receive payments relating to any futures aer the said date. The appellant filed a petition against closing of the company following their resolution to settle all outstanding transactions before the closing day at the prevailing rate.

Issues Before the Court:

1. Whether the arbitration agreement was still valid and subsisting?

2. Whether the dispute between the parties could be referred to arbitration?

   
   
   
   

   The Supreme Court held that:

   • Even if the contract was alleged to be repudiated, the arbitration clause could still survive for resolving the disputes unless the agreement was specifically revoked.

   • The arbitration clause is independent of the other terms of the contract.

   • Since the arbitration agreement was not revoked as per law, the court allowed the arbitration process to proceed.

JUDGEMENT:

The appeal court held that the notification had voided any outstanding transaction in guts and futures. Thus, no case was made out from the closing of the company and the notification against the transactions in futures in gut was to operate in the prospective.

Legal Principles Established:

1. Survivability of Arbitration Clause: The arbitration clause can survive termination or repudiation of the main contract unless specifically revoked.

2. Scope of Section 20 of the Arbitration Act, 1940: The court can order filing of arbitration agreement and refer matters to arbitration if the agreement is valid and dispute exists.

3. Doctrine of Severability: Arbitration clause is considered separable from the substantive contract.

   
   

Relevance:

This case is a landmark judgment reinforcing the independent and binding nature of arbitration clauses, even when the underlying contract is challenged. It is frequently cited in discussions on arbitration law in India.