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PETITIONER: RAMVALLABH TIBREWALLA

       Vs.

RESPONDENT: DWARKADAS & CO.

DATE OF JUDGMENT: 31/08/1965

BENCH: BACHAWAT, R.S. BENCH: BACHAWAT, R.S. SUBBARAO, K. MUDHOLKAR, J.R.

CITATION:  1966 AIR  402            1966 SCR  (1) 689

ACT: Arbitration Act (10 of 1940), s. 20--Scope of.

HEADNOTE: After the appellant instituted a suit against the respondent claiming  a  money  decree  the  parties  entered  into   an agreement for reference of the disputes to arbitration.  The agreement  provided for the withdrawal of the suit  and  the suit was withdrawn on or about the same date as that of  the -agreement.  There were changes in the arbitrator, and  also extensions  of time, but no award was made.   The  appellant therefore applied to the Court for filing of the arbitration agreement, under s. 20 of the Arbitration Act, 1940, but the application was rejected on the ground that the section  was not attracted. In the appeal to this Court, HELD  :  In  the  light of the other parts  of  s.  20,  its heading,  and  the  general scheme of  the  Act,  the  words "before  the  institution of any suit with  respect  to  the subject  matter of the agreement or any part of it"  in  the section,  mean, "while no suit with respect to  the  subject matter  of the agreement or any part of it is pending";  and not "where no suit has been instituted".     Therefore,  the section is attracted to an arbitration agreement entered   into while no suit with respect to its subject matter is pending. L691 G-H; 692 H; 693 A-B] Since  on  a proper interpretation of the agreement  in  the present  case the withdrawal of the suit was  the  essential condition,  the agreement would become operative  only  upon its  fulfilment.  Thus the effective  arbitration  agreement came  into  existence when the suit was  withdrawn  and  may properly  be  said to have been entered into while  no  suit with respect to its subject matter was pending.   Therefore, the agreement could be filed under s. 20. [694 A-C]

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 460 of 1965. Appeal  by special leave from the judgment and  order  dated February 21, 1964, of the Bombay High Court in Appeal No. 58

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of 1960. P.   R. Mridul G. L. Sanghi, J. B. Dadachanji, O. C.  Mathur and Ravinder Narain, for the appellant. A.   V.  Viswanatha Sastri, D. R. Dhanuka, B.  R.  Agarwala, and H. K. Puri, for the respondent. The Judgment of the Court was delivered by Bachawat,  J. This appeal raises a question of  construction of s.     20  of  the  Indian Arbitration  Act,  1940.   The appellant instituted 690 Suit  No. 1712 of 1949 in the Bombay High Court against  the respondent  claiming  a decree for money said to be  due  on account  of  various dealings between the  parties.   On  or about  February  18,  1954,  the  parties  entered  into  an arbitration  agreement for reference of the disputes to  the arbitration of Sri Ramrikhdas Parasrampuria.  The  agreement also  provided for withdrawal of the suit.  In view  of  the agreement,  the suit was duly withdrawn.  Sri  Parasrampuria was  subsequently  removed,  and in  his  place,  two  other arbitrators  were  appointed.  These arbitrators  were  also subsequently  removed, and in their place, Sri S.  V.  Gupte was appointed the arbitrator.  The time for making the award was  extended  by orders of Court from time to  time  up  to March 21, 1958.  Two more applications for extension of time were  rejected by the Court.  Sri S. V. Gupte was unable  to make the award by March 25, 1958. On April 3, 1958, the appellant applied to the Court for (a) the  firm  of the arbitration agreement under s. 20  of  the Indian  Arbitration Act, 1940, (b) extension of the time  of Sri.   Gupte  to  make the award, (c)  in  the  alternative, reference  of the disputes to some other person, and (d)  an order for exclusion of the time from February 18, 1954 up to April  3, 1958 so as to save the bar of limitation, if  any. The prayer for extension of the time of Sri.  Gupte to  make the award was rejected by K. K. J. and also by the appellate Court,  and  that  prayer  is  no  longer  pressed  by   the appellant.  Both Courts also rejected the appellant’s prayer for the filing of the arbitration agreement under S. 20.  K. K.  Desai,  J.  held that in order to  attract  s.  20,  the applicant  must  ’prove  that  the  subject-matter  of   the arbitration agreement was not the subject-matter of any suit already  instituted.   The  appellate Bench  hold  that  the arbitration  agreement having been entered into  five  years after  the institution of the suit, could not be said to  be an arbitration agreement before the institution of any  suit with  respect  to  the subject-matter of  the  agreement  as contemplated by S. 20(1).  The appellant now appeals to this Court by special leave. The  respondent  contends that the opening words  of  s.  20 pretender filing of the arbitration agreement dated February 18,  1954,  As  the agreement was  entered  into  after  the institution of a suit with respect to the subject-matter  of the  agreement.   The  appellant contends that (1  )  s.  20 permits the filing of an arbitration agreement entered  into during  the  pendency of such a suit, if the  suit  ;Is  not reading  when  the  party applies for  the  filing,  in  the alternative (2) s. 20 permits the filing of an arbitration 691 agreement entered into while no such suit is pending, though such  a suit might have been instituted previously, and  (3) the  arbitration  agreement  dated  February  18,  1954  was intended  to be operative upon, the withdrawal of  the  suit and was thus an agreement entered into while the suit was no longer pending and it could properly be filed Linder s. 20. Sub-section (1) of s. 20 reads

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             "Where  any  persons  have  entered  into   an               arbitration  agreement before the  institution               of any suit with respect to the subject-matter               of the agreement or any part of it, and  where               a difference has arisen to which the agreement               applies  they  or  any  of  them,  instead  of               proceeding  under Chapter 11, may apply  to  a               Court  having  jurisdiction in the  matter  to               which   the   agreement  relates,   that   the               agreement be filed in Court." The  dispute turns on the proper meaning to be given to  the words  "before the institution of any suit with  respect  to the  subject-matter of the agreement or any ,,-art  of  it". Four   alternative  interpretations  of  these   words   are suggested  :  (1) The word "before" suggests  precedence  in point  of  time;  the section  contemplates  an  arbitration agreement followed by a suit with respect its subject-matter and if there is no such suit, the section is not  attracted; (2)  The word,,; "before the institution of any  suit"  mean "where  no suit has been instituted"; the section  precludes the  filing of. an arbitration agreement entered into  after the  institution of the suit, even though the suit may  have been  withdrawn before the making of the agreement. (3)  The words  "before the institution of any suit" mean  "while  no suit  is  pending";  the section permits the  filing  of  in arbitration agreement entered into while no suit is  pending though  previously sucha a suit was instituted; and (4)  the word-, "before the institution of any suit" etc. qualify the words  "may  apply"; the section permits the filing  of  all arbitration  agreements provided the application for  filing is made while no suit is  pending The object of the opening words is to restrict the operation of  s. 20 a limited class of arbitration agreements.  It  is obvious  that  the opening a words admit of  more  than  one meaning.  For the purpose of resolving the ambiguity, it  is legitimate  to refer to the other parts of the section,  the headin, of Chap.  III and the Feneral scheme of   the Act. The  Arbitration  Act. 1940 contemplates  three  classes  of arbitrations (1) arbitration without intervention of a Court under 692 Chap. 11; (2) arbitration with intervention of a Court where there  is  no  suit  pending,  under  Chap.   III  and   (3) arbitration  in  suits  under  Chap.   IV.   An  arbitration agreement  between  tile  parties ’to  a  pending  suit  for reference of any dispute in the suit entered into while  the suit  is  peiding may be enforced under Chap.   IV  only  by obtaining an order of reference from the Court in which  the suit  is pending and not by proceeding under Chaps.  Il  and III.   But  an arbitration agreement entered into  while  no suit with respect to its subject-matter is pending cannot be enforced under Chap.  IV, and there ’is nothing in Chap.  IV or  the  general  scheme of the  Act,  which  precludes  the enforcement  of such an agreement under Chaps.  II and  111. The effect of a subsequent suit with respect to the subject- matter of the agreement is considered and dealt with in  ss. 34 and 35 of Chap.  V. The  heading of Chap.  III shows that the subject-matter  of s.   20  is "arbitration with intervention of a Court  where there is no    suit pending".  The heading is wide enough to include  arbitration under an arbitration agreement  entered into  while  no suit with respect to the  subject-matter  is pending. The words "instead of proceeding under Chapter 11" in s.  20 suggest that the parties may proceed under Chap.  III  where

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they  could proceed under Chap.  II.  Reading Chap. 11  with s. 2(a), it -is plain that an arbitration agreement  entered into  while  no suit with respect to its  subject-matter  is Pending  may  be enforced under Chap.  If.   Since  such  an agreement  is enforceable under Chap. 11, prima facie it  is also enforceable under Chap.  III. The opening words of s. 20 contemplate that a suit with res- pect to the subject-matter of the arbitration agreement  may or may not be filed.  In order to attract s. 20, it is  not, therefore,  necessary that the arbitration agreement  should be  followed by a suit with respect to  its  subject-matter. The  word  "before" is not used in  the  strict  grammatical sense  of  priority in order of time.  In the light  of  the other parts of S. 20, its heading and the general scheme  of the  Act,  we  think that the  legislature  used  the  words "before the institution of any suit" in the sense of  "while no  suit is pending" and not in the sense of "where no  suit has been instituted." The former meaning, is more in harmony with  the  real  intention  of  the  legislature.   If   the agreement is entered into while no suit with respect to  its subject-matter is pending, the fact that its  subject-matter was the subject-matter of a previously instituted suit would not  preclude  its enforcement under Chaps.  II  and  M.  We think, therefore, that the words "before the institution  of any suit with respect to the subject-matter of the agreement or any 69 3 part of it" mean "while no suit with respect to the subject- matter  of  the  agreement or any part of  it  is  pending". These  word.-, qualify the preceding words  "an  arbitration agreement"  and  not the succeeding words "may  apply".   In other words, s. 20 is attracted to an arbitration  agreement entered  into  while no suit with respect  to  its  subject- matter is pending.  If it is entered into while such a  Suit Is pending it cannot be enforced by an application under  s. 20 though the opplication is made when the suit is no longer pending. Learned  counsel  for  the  parties  cited  before  us   the following  cases decided under paragraph 17 of Sch.   II  of the  Code  of  1908, viz., Kokil Singh  v.  Ramasray  Prasad Choudhary(1),  Lal  Chand v. Sri Ram (2), Hira  Ram  v.  Ram Ditta   (3)  and  Dinkarrai  Lakshmiprasad  v.   Yeshwantrai Hariprasad(4).   It  is to be noticed that  the  heading  of Chap.   III "Arbitration with intervention of a court  where there is no suit pending" and the words in s. 20 "before the institution  of any suit with respect to the  subject-matter of  the  agreement  or  any part  of  it"  and  "instead  of proceeding under Chapter 11" do not find any counterpart in. the corresponding provision of Sch. 11 of the Code of  Civil Procedure,  1908.  In the circumstances, we thin,  that  the cases  decided under paragraph 17 of Sch. 11 of the Code  of 1908 are not decisive on the question of construction of  s. 20 of the present Act, and that section must be construed in the  light  of  its  own language  and  the  scheme  of  the -,)resent Act. Now,  the question is whether the agreement  dated  February 18, 1954 is an agreement, to which s. 20 is attracted.   The relevant operative portion of the agreement reads               "All  matters in disputes in suit No. 1712  of               1949  (Ramvallabh  Tibrewalla  v/s.    Messrs.               Dwark-adas   &  Co.)  in  Bombay  High   Court               including the question of whether the accounts               were  made  up  and  adjusted  and/or  settled               between the parties as pleaded in the  written               statement  of the Defendants and the costs  of

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             the  suit be referred to the sole  arbitration               of Ramrikhdas Parasrampuria.... The  intention               of  the  parties is that the said  matters  in               dispute between them be decided by arbitration               and  it  is  agreed that the  said  suit  will               therefore be withdrawn." The  agreement  was signed on February 18, 1954,  while  the suit was pending.  Before us, it is admitted by counsel  for both parties (1)  (1924) I.L.R. 3 Patna 443, (3)  A.I.R. 1935 Lah. 59. (2)  A.T.R. 1930 Lab. 1066. (4)  (1930) I.L.R. 54 Dom. 197. 6 94 that the suit was withdrawn on or about the same date.   The parties  obviously intended that the pending suit  would  be withdrawn immediately so that the disputes might be resolved by arbitration without recourse to litigation.  On a  proper interpretation of the agreement, the withdrawal of the  suit was  the essential condition, upon the fulfilment  of  which the  agreement would become operative.  Thus, the  effective arbitration agreement came into existence when the suit  was withdrawn and may properly be said to have been entered into while  no  suit  with  respect  to  its  subject-matter  was pending.   The agreement can, therefore, be filed  under  s. 20. The ground upon which the Courts below dismissed the  appli- cation  for  filing the arbitration agreement  under  s.  20 cannot,  therefore, be upheld.  A technical objection as  to the  frame of the application based on Rule 391 of the  High Court  Rules is no longer pressed.  But the respondent  also contends that (1) the appellant elected to proceed with  the arbitration  under  Chap.   II, and having  so  elected,  he cannot  row  claim arbitration, under Chap.   III;  (2)  the application  is  barred by limitations and  the  prayer  for exclusion  of time under s. 37 ought not to be allowed;  and (3)  the parties intended that the arbitration would  be  by Ranirikhdas Parasrampuria only, and as he is not willing  to act  and/or  has  been  removed, there  can  be  no  further arbitration.  the  Courts below have  not  considered  these contentions of the respondent.  Having heard learned counsel on both. sides, we think that the respondent is entitled  to ask  for  the  final  disposal  of  the  application   after consideration of these points by the lower Appellate  Court, and for that purpose, this case should be remanded. In  the  result,  the appeal is allowed,  the  judgment  and decree  date February 21, 1964 of the Bombay High  Court  in Appeal No. 58 of 196O are set aside and the aforesaid Appeal No.  58 of 1960 Is remanded to the Court below for  disposal in  accordance with law.  The respondent shall pay  ’to  the appellant the costs of                            Appeal 695