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Judgment
S. Ramachandra Iyer, C.J.—Shah Nainmull Umaji & Co., the first respondent in the above Civil Revision Petition, entered into contracts
individually with 29 persons for the purchase of camphor. The petitioner was one of those persons who entered into a contract. Each of the
contracts was made subject to the rules of the Madras Kirana Merchants Association; of which the parties to the contract were members. The
rules of the Association provided for reference of disputes between its members to arbitration. In respect of one such contract, a seller,, between
whom and the first respondent a dispute arose with the permission of the Association filed O.S. No. 1291 of 1959 in the City Civil Court at
Madras for recovery of a sum of Rs. 15,000 as damages for breach of contract on the part of the latter, the breach complained of being failure to
take delivery of the goods contracted to be sold. The 28 remaining persons, each of whom also had similar claims against the first respondent,
applied to the Association for nomination of an arbitrator to settle their respective disputes with the first respondent. I am informed that arbitration
proceedings have commenced but have not yet been concluded. Their claims exceeded Rs. 1,00,000. Pending the suit, the plaintiff in O.S. No.
1291 of 1959 applied for an order of attachment before judgment of the goods owned by the first respondent. An order was made and certain
quantity of camphor was attached. The attached goods were subsequently sold and a sum of about Rs. 1,29,000 was brought into the Court and
paid to the credit of O.S. No. 1291 of 1959. The other 28 merchants, who had claims against the first respondent, but whose claims was the
subject-matter of arbitration proceedings, applied to the lower Court u/s 41 of the Indian Arbitration Act, for detention of the money pending the
arbitration proceedings. On 5th February, 1960, the Court passed an order directing such detention.
It will be convenient, at this stage, to refer to the final portions of the order:
Mr. A.K. Muthuswamy Iyer, learned Counsel for some of the petitioners in the Original Petitions suggested that the entirely of the amount that now
stands deposited to the credit of O.S. No. 1291 of 1959 may be distributed and credited to the various Original Petitions according to the claims
made therein. I do not think it necessary to do so at this stage in view of the orders that have been passed. If and when the claims are adjudicated
upon, it should not be difficult to make the necessary adjustments.
Mr. A. Abdul Rahim, the learned Counsel for the respondent, had certain contentions regarding the maintainability of the applications u/s 41 of the
Arbitration Act to urge. However, he was willing that the amounts now in deposit, and to be deposited should remain in Court till the final disposal
of all the disputes and contentions between the parties. In this view, it is not necessary to go into the various questions of maintainability or
otherwise of these petitions except to make it clear that those contentions have not been considered, and the orders regarding deposit have been
made only to safeguard the interests of all concerned, as also as a test of the bona fides of the respondent.
The petitions were ordered accordingly. O.S. No. 1291 of 1959 came up for hearing subsequently and it was dismissed. The first respondent
thereupon applied to the lower Court to withdraw the entire amount deposited, viz., not merely the amount covered by the claim in the suit, but
also those covered by the orders u/s 41 of the Arbitration Act which had been directed to be detained in Court. It will be noticed that this
application was in contravention of the undertaking given by Mr. A. Abdul Rahim for the first respondent who had stated that the amounts should
remain in Court till the final disposal of all the disputes and contentions between the parties. Admittedly, the arbitration proceedings, which had
already commenced and pending which the orders were made, had not come to a close. It is rather strange that the respondent should have given
the go-by to the solemn concession made on his behalf by his counsel and filed the application for withdrawing the entire amount. But what is
stranger still is for the learned Assistant City Civil Judge to have allowed the entire sum to be withdrawn by the first respondent. The reason, which
is given in justification of this order, contrary as it was and also against the specific directions contained in the order referred to above, is that the
applications u/s 41 on which special orders were passed were not maintainable and therefore the order was invalid. The learned Judge disposing of
the applications u/s 41 pointed out, it was practically agreed on the part of the first respondent not to contest the propriety of the application u/s 41
but that the amounts should remain pending final adjudication of the disputes and contentions between the parties. Sums of money, which would
cover the various claims in the arbitration proceedings, were not set apart to the credit of the various O.Ps., as the learned Judge said that such
setting apart could be made after the claims had been adjudicated upon. It has now to be considered whether the learned City Civil Judge is right
in his view that there can be no application for attachment before judgment or an order for detention of money in Court pending arbitration
proceedings. According to the learned Judge, Section 41 would only apply if proceedings were pending in the Court itself and not when what was
pending was merely arbitration proceedings. This view is directly opposed to the provisions of Section 41, which run as follows:
Subject to the provisions of this Act and of rules made thereunder:
(a) the provisions of the Code of Civil Procedure, 1908, shall apply to all proceedings before the Court, and to all appeals, under this Act, and
(b) the Court shall have, for the purpose of, and in relation to, arbitration proceedings, the same power of making orders in respect of any of the
matters set out in the Second Schedule as it has for the purpose of, and in relation to, any proceedings before the Court:
Provided that nothing in Clause (4) shall be taken to prejudice any power which may be vested in an arbitrator or umpire for making orders with
respect to any of such matters.
It will be apparent from a reading of the section that it provides both for the case where arbitration proceedings are pending before a Court as well
as for one where such proceedings are not pending before the Court but before the arbitrator. Clause (a) refers to proceedings, which are before
the Court. That indicates that the provisions of the CPC will generally apply to all such proceedings. Clause (b), on the other hand, relates to
proceedings which are not before the Court, but which are only pending before the arbitrator. If Clause (b) also were to apply only to
proceedings, which are pending before the Court, it would have been redundant or unnecessary, as the previous clause, Clause (a), would be quite
sufficient to meet all contingencies. The Second Schedule, which is incorporated into the provisions of Clause (b) of Section 41 contains five items.
This is purely to prevent a party to the arbitration proceedings secreting the properties pending arbitration proceedings and defeat any award that
may be passed therein. In Subramanian and Others Vs. M.P. Vasudevan Chettiar and Others, , Krishnaswami Nayudu, J., observes that Clause
(b) of Section 41 makes certain provisions of CPC covered under the Second Schedule of the Act applicable generally to arbitration proceedings,
i.e., not to proceedings before the Court, but to proceedings before the arbitrators. I agree with that view with respect. The conclusion of the
learned Assistant City Civil Judge that Section 41 would not apply to proceedings before the arbitrator cannot therefore be sustained.
Mr. N. Panchapakesa Ayyar, who appears for the first respondent, has contended that as the entire sum of Rs. 1,29,000 had been kept to the
credit of O.S. No. 1291 of 1959, the Court would have no right to retain the moneys any longer as that suit has been disposed of. It is
unnecessary to consider this contention in extenso in view of the terms of the order of the Court in the application u/s 41, which I have extracted
earlier in my judgment. That order specifically says that the entire amount should be kept to the credit of O.S. No. 1291 of 1959 purely on
account of convenience and that, later on, the money should be allocated appropriate to the various original petitions, which sought for an interim
order pending termination of the arbitration proceedings.
Learned Counsel for the first respondent then contended that as more than four months had elapsed since the date of reference the arbitration
proceedings should be held to have become futile and as it was no longer possible for the arbitrator to pass a legal award, the lower Court was
entitled to take that circumstance into consideration and direct a refund of the moneys to the first respondent. This point was however not taken
before the lower Court. It is not known whether there has been any application for extension of time for the submission of the award; it is however
said on behalf of the first respondent that no such application was ever filed. But whether there is such an application or not, I consider that the
proper procedure for the first respondent will be to apply to the lower Court to vacate the order in all the petitions u/s 41 of the Arbitration Act on
the ground that the arbitration proceedings had become infructuous by reason of the fact that the award was not delivered within the period of four
months. If such an application is made to the lower Court, the Court will then have to consider whether the arbitration proceedings have been
rendered futile and pass an appropriate order for refunding the moneys to the first respondent. I am of opinion that it is not now open to the first
respondent by merely filing an application for refund of the money to obtain the sum without setting aside the orders passed u/s 41.
The result if that the order of the lower Court will have to be and is accordingly set aside. Sums representing the claim of the various petitioners
u/s 41 of the Indian Arbitration Act will be retained by the lower Court pending awards that may be passed or, at any rate, pending adjudication of
the question whether the proceedings have failed. The balance of the amount will be refunded to the first respondent. The Civil Revision Petition is
allowed but without any order as to cost.