C.M. Mathu Kutty vs Varee Kutty

Satyanarayana Rao, J.—This is an appeal by the plaintiff in O.S. No. 15 of 1946 Subordinate Judge''s Court, Ottapalam, against the order

of the learned Subordinate Judge staying the trial of the suit u/s 34 of the Indian Arbitration Act, X of 1940.

The plaintiff and the defendant are brothers and are the sons of one Cheeran. Mathu who died in February, 1944. After the father''s death, there

were disputes; between the brothers regarding the property left by the father and the suit for partition was instituted for division of the properties.

The defendant filed an application u/s 34 of the Indian Arbitration Act for stay of trial of the suit on the ground that there was an agreement

between the parties to refer the disputes to five named arbitrators and that in pursuance of the agreement there was a. reference to arbitrators. It

was also alleged in the petition filed by the defendant that the parties filed detailed statements regarding the disputes before the arbitrators. The

agreement to refer the disputes before the arbitrators, is dated 19th December, 1945. The detailed, statement was filed before the arbitrators by

the parties on the 20th December, 1945. The arbitrators, met and. recorded depositions on the 20th January, 1946. On the 23rd January, 1946,

according to the case of the defendant there was also a razinama between the two brothers, whereunder some of the disputes between them were

actually settled and the arbitrators were authorised to carry out the partition of the properties to give effect to the settlement of the date. He

therefore claimed in the petition that in view of the existence of an arbitration agreement between the parties under which a reference was made to

the arbitrators and which reference was pending enquiry before them, the trial of the suit should be stayed u/s 34 of the Act. This application was

opposed by the plaintiff on various grounds, the most important of which was the denial of the existence of a valid agreement referring the disputes

to arbitration.

The sum and substance of the plaintiff''s case is that some signatures on some papers were obtained by fraud and misrepresentation, particulars

of which were given in the counter-affidavit filed by him. In paragraph 2 of the counter, he categorically stated that no reference to arbitration was

made to the arbitrators and that he had not signed and in paragraph 5 he added that he did not even sign any deed of reference knowing the same

to be a deed of reference to arbitration or understanding the nature of the deed. He also denied the existence of the razinama between them and

that he did not even sign any such document. He also raised some other legal contentions which were overruled by the lower Court and which

have not been now pressed before me.

The learned Subordinate Judge who heard the application refused to take evidence on the case of fraud and misrepresentation put forward by

the plaintiff on the ground that u/s 34 of the Act no evidence on the question of the validity of an arbitration agreement could be taken as the only

right of the person raising such defence was to apply u/s 33 of the Act, and as the plaintiff had not followed that course, it was not incumbent on

him to take evidence. He therefore overruled the objections of the plairitiff and passed an order directing stay of the trial of the suit as, in his

opinion, there was a prima facie valid arbitration agreement entered into between the parties.

In this appeal by the plaintiff the only argument raised on behalf of the appellant is that the learned Judge was not justified in refusing to take oral

evidence to establish his plea that the agreement was vitiated by fraud and misrepresentation.

The Indian Arbitration Act (X of 1940) consolidates and amends the law relating to arbitration in British India. Before this Act, the law relating

to arbitration in Presidency Towns was contained in the Indian Arbitration Act, 1899 and so far as the mofussal was concerned, the law was

embodied in Schedule II to the Code of Civil Procedure. All these provisions have now been consolidated and certain alterations were also

introduced in the law relating to arbitration in India by the Act of 1940.

By Section 32 of the Act a suit to contest the existence or validity of an arbitration agreement or award on any ground whatsoever is barred and

the only manner by which those questions, can be decided is by following the procedure laid down in the Act. These sections were introduced for

the first time by the Act of 1940. Section 33 enables a party to an arbitration agreement or persons claiming through such a party to challenge the

existence or validity of an arbitration agreement or an award or to have the effect of either determined by an application to the Court. That

therefore is the procedure indicated by the Act to get a decision upon the existence, effect or validity of an arbitration agreement or an award.

Then follows Section 34 which entitles a party to an arbitration agreement or a person claiming under such a party against whom a legal proceeding

by way of suit or otherwise is taken to apply under the section before filing a written statement or taking any other steps in the proceeding for stay

of trial of those proceedings on the ground that there is an arbitration agreement between the parties which the applicant is ready and willing to

carry out.

The question that arises for consideration now is where an application u/s 34 is made alleging that there is an arbitration agreement the existence

of which bars the trial of the suit and when the respondent to such a petition raises the contention that the agreement is unenforceable by reason of

fraud, undue influence or collusion or even misrepresentation, is it incumbent upon the Court to try that question in that very proceeding or is it

obligatory on the part of the person raising such a defence to make an independent application u/s 33 of the Act ? The learned Subordinate Judge

was of opinion that in such a case the only course open to the person is to apply u/s 33 to have the matter tried and decided and this is also the

argument advanced on behalf of the defendant respondent in this Court. The very foundation for the jurisdiction of the Court to stay the trial of a

suit u/s 34 is the existence of an arbitration agreement. The applicant corers to Court and asserts that there is such an agreement while the other

side either disputes the truth of such an agreement or admitting its truth pleads that it is invalid by reason of other vitiating circumstances which are

open under law for the objector to raise and prove. I do not see any reason why in that event when the question was raised and the validity of the

jurisdiction of the Court depends upon the result of its decision on that question, the Court should not try that issue. Section 33, in my opinion,

gives an independent right to a person who wishes to challenge the existence or validity of an arbitration agreement or award and to anticipate the

other side and to initiate proceedings to have those questions determined beforehand. It does not, in my opinion, prohibit the Court acting u/s 34 of

the Act from deciding a question which is raised before it for its decision and the decision on which alone would depend the exercise of its

jurisdiction. From this point of view it seems to me that the learned Subordinate Judge was not justified in preventing the plaintiff from adducing

evidence on the question of fraud and misrepresentation put forward by him. If necessary the counter filed by the plaintiff may be treated as an

application u/s 33, but I think even this is not required.

I am supported in my view of the sections (32, 33 and 34) by a decision of a Bench of the Bombay High Court in Bhagwandas Atmasing Vs.

Atmasing Jessasing, The judgment of the Court was delivered in that case by Kania, J. (as he then was). In that case when the defendant in a suit

made an application for stay u/s 34 alleging an arbitration agreement, the plaintiff denied the existence of such an agreement. The argument on

behalf of the defendant who filed the Application u/s 34 was that in view of Sections 32 and 33 of the Arbitration Act, 1940, the plaintiff was not

entitled to challenge the existence of an arbitration agreement in that proceeding and that it was incumbent upon the plaintiff if he wanted to have

that question decided to take out a substantive application u/s 33 of the Act challenging the existence of the arbitration agreement and obtain a

decision of the Court on that point. This argument found favour before the trial Judge, Coyajee, J., but his decision was reversed on appeal by the

Bench. At page 495 of the report, it was stated that the effect of these sections was not to preclude the respondent in an application u/s 34 to set

up the defence of the non-existence of an agreement which was propounded by the other side. The defendant who applies u/s 34, in order to

succeed in his. application has to establish the existence of an agreement. If the plaintiff denies the existence of an agreement, then it raises an issue

between the parties which should be tried u/s 34 of the Act and the learned Judges saw no impediment for the Court to adjudicate upon that issue.

The question now raised in this appeal, in my opinion, is clearly covered by the decision of the Bombay High Court above referred to. The learned

Subordinate Judge before,whom this case was cited, however, thought that it had no application to the facts of the present case as the dispute

there was about the existence of the agreement itself but, as in the present case, the plea taken was that it was vitiated by fraud, the principle of that

case had no application. I see no difference in principle whether the defence raised was the non-existence of the agreement or the validity of an

agreement. The scope and the jurisdiction of the Court acting u/s 34 does not depend upon the nature of the defence raised, i.e., whether the

existence of the agreement itself is disputed or whether the existence having been admitted, its invalidity on the ground of fraud and

misrepresentation was raised. It is only on this ground the learned Subordinate Judge thought that the decision of the Bombay High Court had no

application. For the reasons already stated, I differ from the Opinion of the learned Subordinate Judge and hold that the decision in Bhagwandas v.

Atmasing AIR 1915 Bom. 494. applies to the present case.

The learned advocate for the respondent drew my attention to some of the cases of the other High Courts. Narsingh Prasad Boobna v.

Dhanraj Mills (1942) ILR 21 Pat. 544. was a. decision under the Indian Arbitration Act of 1899 and_ arose out of an application for stay u/s 19

of that Act. It was held in that case that it is not within the jurisdiction of an arbitrator to decide whether a contract as propounded by one of the

parties contained forged clauses or interpellations or contained clauses which were inserted as a result of fraud or mistake and that such disputes

which go to the root of the matter should be decided in a suit. The decision itself, it may be pointed out, was under an Act which did not contain

provisions analogous to Sections 31 to 33 of the present Arbitration. Act and the decision in that case is not relevant for the decision of the present

question. There are two decisions of the Calcutta High Court in Manick Lal v. Shiva Jute Bailing 50 C.W.N. 389 and Baijnath Narseria v. Chhotu

Lal Sethi 52 C.W.N. 397. In both the cases the question considered was whether in view of Sections 32 and 33 of the Indian Arbitration Act, a

party had a right to file a suit to establish that there was in fact no agreement to refer to arbitration. The answer given by the Calcutta High Court

was that such a suit was not barred. The decision of the Bombay High Court was referred to in the course of the judgment. In the first of these

cases, the difficulty in reconciling the language of Sections 32 and 33 of the Act was pointed out. Section 32 of the Act as stated above bars the

right of a suit even if the existence of the agreement was denied and compels the party wanting to raise the dispute to follow the procedure laid

down under the Act, and the procedure even in such a case is to make an application u/s 33 of the Act challenging the existence of the agreement.

But the section opens with the words ""any party to an arbitration agreement "" and gives to such a party desiring to challenge the existence of the

agreement a right to apply under the section. It was asked in that case with considerable force,

If the existence of the agreement itself was disputed, how could the applicant disputing the existence of an agreement be aptly described as a party

to an arbitration agreement and how could such a person apply u/s 33.

The solution suggested by Das, J., was that the word ""existence"" should be interpreted in a restricted sense as

implying the legal existence as opposed to apparent or mere factual existence, i.e., as opposed to a mere semblance of existence.

The same view was also adopted in the later case. I am, however, not called upon. to decide in this case and resolve the conflict referred to in the

judgments of the Calcutta Court. The expression ""any party to an arbitration agreement"" in. Section 33 taken along with the fact that he is the

person who challenges the existence of the agreement must be understood as having reference to a person who is put forward as being a party to

an arbitration agreement but who does not admit its existence. It is not necessary, in my opinion, to restrict the meaning of the word "" existence "" in

the manner in which the Calcutta Judges have done, but may be taken as referring in the context to an agreement which is apparent and not real.

The expression only describes the agreement and does not assume the truth of the agreement. If so understood, there is no inconsistency in the

language of the section. However this may be, it is really unnecessary for the purpose of the decision of this case to express any final opinion on the

point. As the. matter was, however, argued at length and the decisions were cited before me, I have thought it proper to refer to them in my

judgment.

It follows therefore that the procedure adopted by the learned Subordinate Judge in disposing the application without recording the evidence

which the plaintiff was ready and willing to tender cannot be justified. The order of the learned Subordinate Judge is therefore set aside and this

appeal should be allowed and the application remanded for disposal according to law and in the light of the observations contained in this

judgment. The appellant is entitled to the costs of the appeal here from the respondents and the costs of the appellant in the lower Court. will be

provided for in the revised order of the learned Subordinate Judge.