Skip to content


Mathuradas Maganlal Vs. Maganlal Parbhudas - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtMumbai
Decided On
Case NumberO.C.J. Appeal No. 4 of 1933 and Suit No. 1473 of 1930
Judge
Reported inAIR1934Bom79; (1934)36BOMLR47; 150Ind.Cas.478
AppellantMathuradas Maganlal
RespondentMaganlal Parbhudas
Excerpt:
.....it is, in my opinion, quite clear on the plaint that what the plaintiff purports to sue on is the oral agreement to refer, which includes an agreement to be bound by a valid award made on the reference followed by a written award, and that is in form a perfectly good suit. it is clearly to be understood that nothing contained in this regulation is meant to prohibit or discourage amicable adjustments, though made in a way different from that herein prescribed, provided that such adjustments shall not be entitled to the consideration conferred on arbitration awards by virtue of this regulation. in relation to, an arbitration under the act, are all based on a submission, which, having regard to the definition, means a submission in writing, for instance section 15 which enables an award on..........the arbitrators made their award, and by clause 9 they dealt: with the question referred by this oral agreement, that is, the dispute between the plaintiff and the defendant, and they awarded the plaintiff a share of the defendant's commission. the plaintiff also claims in the alternative that if the award, or clause 9 thereof, is invalid and not binding on the defendant, then the defendant is bound specifically to perform the agreement and to pay to the plaintiff a share of the commission alleged to have been agreed to be given to him.2. various issues were raised both as to the verbal agreement to refer and the validity of clause 9 of the award, and also as to the agreement between the plaintiff and the defendant as to the latter's commission. the learned judge dealt with the issues.....
Judgment:

John Beaumont, Kt., C.J.

1. This is an appeal from a decision of Mr. Justice Kania. The plaintiff sues the defendant upon Clause 9 of a certain award. His case, according to the plaint, is tha the and the defendant and certain other relatives of theirs were partners in a firm carried on in the name of the defendant, that is to say, as Maganlal Parbhudas, and that partnership was dissolved in 1929, when disputes arose between the parties which were referred by a written agreement to the arbitration of two gentlemen. It is further alleged in the plaint that the plaintiff, in consideration of his subscribing and procuring subscriptions for shares in the Sidhpur Mills Co. Ltd., was to be entitled, under an agreement between himself and the defendant, to a share of a commission payable to the defendant by that company, of which the defendant and another were agents, and then it is alleged that by a verbal agreement between the plaintiff and the defendant arrived at in the course of the arbitration to which I have referred, the dispute between the plaintiff and the defendant as to the plaintiff's right to this commission was referred for decision to the same two arbitrators. Then it is alleged that the arbitrators made their award, and by Clause 9 they dealt: with the question referred by this oral agreement, that is, the dispute between the plaintiff and the defendant, and they awarded the plaintiff a share of the defendant's commission. The plaintiff also claims in the alternative that if the award, or Clause 9 thereof, is invalid and not binding on the defendant, then the defendant is bound specifically to perform the agreement and to pay to the plaintiff a share of the commission alleged to have been agreed to be given to him.

2. Various issues were raised both as to the verbal agreement to refer and the validity of Clause 9 of the award, and also as to the agreement between the plaintiff and the defendant as to the latter's commission. The learned Judge dealt with the issues relating to the claim of the plaintiff under Clause 9 of the award at a preliminary hearing, and he held that a verbal agreement to refer matters to arbitration could not be proved under Indian law and he answered issues Nos. 3, 4, 5, and 6 in that sense. In a separate judgment he held that the agreement as to sharing commission was not proved, and therefore dismissed the suit.

3. The principal point which arises on this appeal is the question dealt with in the first judgment of the learned Judge, namely, whether a verbal agreement to refer to arbitration can be proved under Indian law. But Mr. Coltman, on behalf of the respondent, has contended that in any event the plaint is bad on the face of it. He suggests that the plaintiff is suing under the whole award, and that under Sections 16 and 30 of the Specific Relief Act he is not at liberty to sue for the enforcing of part of his rights. He also alleges that there is no averment in the plaint of the fact that the plaintiff is ready and willing to carry out his part of the bargain. In my opinion there is no force in those contentions. The case of the plaintiff is that an oral agreement was made to refer to arbitration a particular question in dispute between the plaintiff and the defendant, and the mere fact that the finding of the arbitrators upon that matter is included in a document which is also an award made between the plaintiff and the defendant and other parties on a written reference, in my opinion, is irrelevant. So far as the award itself is concerned, it recites the written agreement to refer the questions in dispute between the partners in the firm of Maganlal Parbhudas in respect of that partnership, and when one looks at Clause 9 of the award it deals with a question not between those partners, or relating to that partnership, but a question between the plaintiff and defendant in relation to an outside matter, and if one took the award by itself it might no doubt be said that Clause 9 went beyond the reference. But what the plaintiff desires to do is to prove that there was an oral reference as to the matters dealt with in Clause 9, and I can see no reason why he should be precluded from doing that because the award on the reference happens to be embodied in a document which deals with other matters. It is, in my opinion, quite clear on the plaint that what the plaintiff purports to sue on is the oral agreement to refer, which includes an agreement to be bound by a valid award made on the reference followed by a written award, and that is in form a perfectly good suit. As to the contention that the plaint does not contain an averment by the plaintiff to carry out his part of the bargain, the answer is that there is nothing under the award for the plaintiff to do. Mr. Coltman contends that the draft agreement, referred to in the plaint, and annexed thereto as Ex; B, which is a draft sent by the plaintiff to the defendant, which the defendant refused to execute, shows that there were some obligations which the plaintiff considered that he ought to carry out. But so far as those obligations are concerned, I think that the plaintiff by sending the draft to the defendant impliedly offered to carry out those obligations.

4. The substantial point on this appeal, as I have said, is whether a verbal agreement to refer to arbitration can be proved under Indian law. The learned Judge held that it could not, having regard to the provisions of Section 89 and the second schedule of the Civil Procedure Code, and of the Indian Arbitration Act. The learned Advocate General, on behalf of the appellant, referred us to a large number of cases on Section 89 and the second schedule of the Civil Procedure Code, the argument on those cases being that Section 89 did not operate to alter the law under which at the time when it was passed a verbal reference to arbitration was permissible. But, in ray opinion, it is not necessary to consider those cases, none of which deal with the actual question whether a verbal agreement to refer to arbitration is valid, because I can see nothing in Section 89 or the second schedule which makes such an agreement invalid. No doubt paragraph 17 of the second schedule which deals with filing a reference in Court only relates to a written reference, and that provision would not apply to an oral reference. But there is nothing whatever in the second schedule to suggest that an oral agreement to refer is invalid. That point has not been seriously contested by Mr. Coltman for the respondent. But he has argued with his usual vigour and skill that under the Indian Arbitration Act, in cases to which that Act refers, an oral submission to arbitration is not permissible. On that question there are very few authorities directly in point. There is a decision of this Court by Mr. Justice Beaman in Rukhanbai v. Adamji I.L.R. (1908) Bom. 69 : 10 Bom. L.R. 366 where it was held that an oral agreement to refer was not permissible. There is also a recent decision of the Patna High Court in Ramautar Sah v. Lingat Singh : AIR1931Pat92 in which it was held that an oral agreement to refer to arbitration was permissible, though no considered reasons were given. Then there is a recent decision of a bench of the Madras High Court in Ponnamma v. Kotamma I.L.R. (1932) Mad. 85 in which again it was held that an oral submission to arbitration is permissible in cases to which the Arbitration Act applies, and the decision of Mr. Justice Beaman was dissented from. Mr. Coltman challenges that decision of the Madras High Court mainly on the ground that the learned Judges took the view that the law on the subject in India is the same as the law on the subject in England, since the wording of the Indian Arbitration Act of 1899 follows very closely the wording of the English Act of 1889. But, as Mr. Coltman has pointed out, the learned Judges do not refer in their judgments to the difference between the title and preamble in the two Acts. The English Act is intituled 'an Act for amending and consolidating the enactments relating to arbitration'. On the other hand the Indian Act is intituled 'an Act to amend the law relating to arbitration,' and the preamble states that 'it is expedient to amend the law relating to arbitration by agreement without the intervention of a Court of Justice'. The question being whether the common law right to enter into a verbal agreement for reference to arbitration is taken away by the Act, it is obviously easier to contend that that result is attained by the Indian Act, which is to amend the law relating to arbitration, rather than by the English Act which only amends enactments relating to arbitration. I think, therefore, that it is desirable to decide this question on the words of the Indian Act, without reliance on decisions upon the English Act.

5. As the Indian Act amends the law relating to arbitration, it is necessary to notice what the law in India was at the date when the Act was passed. The first statutory enactment relating to arbitration in this Presidency was Reg. No. VII of 1827, and it is relevant to observe on the point which arises for decision here that after laying down certain methods for settling disputes by arbitration, there is this provision in the third paragraph of the first section:

It is clearly to be understood that nothing contained in this Regulation is meant to prohibit or discourage amicable adjustments, though made in a way different from that herein prescribed, provided that such adjustments shall not be entitled to the consideration conferred on Arbitration Awards by virtue of this Regulation.

6. So that it is quite clear that the authorities who framed that Regulation intended the parties to be free to act independently of the Regulation. Then the next provision was the Civil Procedure Code of 1859. Sections 312 to 325 dealt with references to arbitration in a suit, and Sections 326 and 327 dealt with references independently of a suit. Then in 1861 Regulation VII of 1827 was repealed. The Civil Procedure Code of 1877 substantially re-enacted the provisions as to arbitration of the Code of 1859, and the Code of 1882 again re-enacted those provisions, and that Code was in force when the Indian Arbitration Act was passed. Under that Code the provisions as to arbitration by agreement out of Court were contained in Sections 526 to 529. It is, I think, clear on the wording of the Code and also on the authorities, that the provisions under the Code as to arbitration were not exhaustive, and that the common law right to refer to arbitration by a verbal agreement was in existence in India at the date when the Indian Arbitration Act was passed. In those circumstances the Indian Arbitration Act to amend the law relating to arbitration was passed. Section 2 deals with the scope of the Act and provides that 'it shall apply only in cases where, if the subject-matter submitted to arbitration were the subject of a suit, the suit could whether with leave or otherwise be instituted in a presidency town. 'It is not strictly accurate to say, as is often said, that the Indian Arbitration Act only applies to arbitrations in a presidency town. Reading Section 2 in conjunction with Clause 12 of the Letters Patent, it may, I think, be said generally that the Act applies to arbitrations which are connected, either as to the subject-matter or as to the parties, with a presidency town. Then Section 3 provides that Sections 523 to 526 of the Civil Procedure Code shall not apply to any submission or arbitration to which the provisions of the Act for the time being apply, so that that is in substance a repeal of the existing statutory provisions as to arbitration by agreement in cases to which the Indian Arbitration Act applies, thus leaving the Indian Arbitration Act as the only statutory provision as to agreements coming within its terms. Then there is a proviso to Section 3 to the effect that nothing in the Act shall affect any arbitration pending in a Presidency town at the commencement of the Act but that the Act shall apply to every arbitration commencing after the commencement of the Act under any agreement or order previously made. That provision has been relied upon to some extent by both parties, but I doubt whether it really has any bearing on the question in dispute. Then Section 4 is a definition section, and it defines 'submission' as meaning a written agreement to submit present or future differences to arbitration whether an arbitrator is named therein or not. Then it is to be noticed that practically all the subsequent sections, conferring various rights; in relation to, an arbitration under the Act, are all based on a submission, which, having regard to the definition, means a submission in writing, for instance Section 15 which enables an award on being filed to be enforceable as if it were a decree of the Court is confined to an award on a submission, so that that Section clearly would not apply to an award made on an oral submission. It is, I think, true to say that practically none of the sections would apply to an award made on an oral submission. Then Section 22 is also relied on by the appellant as enacting imperatively that the provisions of this Act shall be binding on the Crown. The argument of Mr. Coltman, for the respondent, is that this Act was designed to amend the whole law relating to arbitration in, what I would call for the sake of convenience, presidency town arbitrations and to enact a code which is compulsory and exhaustive in the case of this class of arbitrations. The argument then is that the operative part of the Act involves that every submission must be in writing, and impliedly makes illegal any verbal agreement to refer to arbitration in a case coming within the class dealt with by the Act. It is, however, to be noticed that the Act contains no express prohibition against a verbal agreement to refer to arbitration ; nor does it contain any express provision that a submission other than in writing is invalid. The only obligation, if there be an obligation, to have a written submission must be deduced from the definition of 'submission' as being a submission in writing, and from the fact that all the operative sections of the Act are based on a submission. I think that point may be answered in two ways. In the first place when one looks carefully at the language of Section 2 it provides that the Act shall apply only in cases where if the subject-matter 'submitted' to arbitration were the subject of a suit the suit could be brought in a presidency town. Now if the verb 'submitted' there has a meaning corresponding to the noun 'submission', it must mean submitted in writing. And if that is so, the Act in terms only applies if the subject-matter submitted in writing to arbitration were the subject of a suit at any such place, and does not apply to any case in which the submission is oral. But I think the case may also be put on a wider ground. The Act, as I have said, does not in terms preclude any oral submission. Where you have an arbitration of the class which falls within the ambit of the Indian Arbitration Act, based on a verbal submission, the Act in terms may apply, although the advantages conferred by the Act which depend on a written submission do not apply. It is impossible to say that parties desiring to refer to arbitration the matter which comes within the class of cases dealt with by the Act, have done something contrary to the express terms of the Act if they enter into an oral agreement to refer. As was pointed out by the Madras High Court, in arbitrations which do not fall within the ambit of the Indian Arbitration Act it is clear that an oral agreement to refer is valid, and I think that we should not be justified in holding that, in cases which do fall within the ambit of the Act, an oral agreement to refer is invalid, Unless we find some definite provision in the Act to that effect, there is, as I have said, no such definite provision, and that being so, it seems to me that an oral agreement to refer is valid, and that the plaintiff is entitled in this case to sue on the agreement to refer (which involves an agreement to act upon any valid award made under the reference) and on the award made thereunder. That being so, I think the case will have to go back to the learned Judge to deal with the issues other than No. 1, and that the rest of the appeal must stand over until that matter has been disposed of.

Blackwell, J.

7. I am of the same opinion. Mr. Coltman has contended that the Indian Arbitration Act, 1899, being as its title shows 'an Act to amend the law relating to arbitration 'has abrogated any law relating to or affecting arbitration previously in the places to which the Act was made applicable. In my opinion the expression 'amend the law' means no more than alter the law previously existing in so far as it would be affected by the amendment. Accordingly it becomes necessary to see what was the law existing in the territory to which the Act is made applicable at the time it was passed. I think it is clear that the law then applicable to arbitrations was the common law of England and the Civil Procedure Code of 1882. Sir Amberson Marten C.J. in the Full Bench decision in Chanbasappa v. Baslingayya I.L.R. (1927) Bom. 908 : 29 Bom. L.R. 1254 reviewed the history of arbitration in India and pointed out that up to the time of Bombay Regulation No. VII of 1827 the common law of England would apply to arbitration in India. It is moreover plain from Clause (3) of that Regulation that although machinery for arbitration was being thereby provided, the Regulation was in no way to be understood as prohibiting any other method of adjusting disputes by arbitration which then existed.

8. As regards the various Civil Procedure Codes which existed before the Code of 1882 and that Code itself, there are numerous decisions which were referred to in the abovementioned full bench case in which it is pointed out that the methods of enforcing awards therein provided were by no means exhaustive, and that parties were entitled to adopt methods of arbitration not contemplated by those Codes, although if they did so they could not take the benefit of the procedure laid down by the Codes for the purpose of enforcing awards. For instance in MuhammadNewaz Khan v. Alam Khan I.L.R. (1891) Cal. 414 their Lordships of the Privy Council said that though an application to enforce an award had been refused under Section 525 of the Civil Procedure Code then in operation, that refusal in no way affected the validity of the award which would have its ordinary legal effect and might be used as a defence in a suit relating to the subject-matter of the award. Therefore, so far as the Courts were concerned, it comes to this that if parties to arbitrations desire to avail themselves of the machinery thereby provided, they had to comply with the provisions of the Codes, but it was and still is open to them to go to arbitration outside those provisions and to avail themselves of and enforce awards independently of them.

9. Coming to the Indian Arbitration Act of 1899 it was an Act passed to amend the law and I take it that the law which was sought to be amended was the common law of England so far as it still applied and the Code of Civil Procedure of 1882. If one looks at the provisions of the Act themselves, it is, in my opinion, plain that the Act was intended only to apply to written submissions to afford machinery by which parties to written submissions might arbitrate and enforce awards. In my judgment it was no more intended to affect the substantive rights of parties to go to arbitration independently of the Act than the provisions relating to arbitration in the Code of Civil Procedure were intended to affect their substantive rights to go to arbitration independently of the Codes.

10. Section 2 provides that the Act shall apply only in cases where if the subject-matter submitted to arbitration were the subject of a suit the suit could whether with leave or otherwise be instituted in a presidency town. The object of that section is, in my opinion, merely to define the extent to which the Act is to apply, that is, to define the legal limits within which the machinery provided by the Act for the arbitrations which fall within its scope is applicable. Mr. Coltman has relied upon the words 'shall apply' in support of his contention that the Act made it compulsory upon persons who wished to go to arbitration within the limits to which the Act applied to do so in accordance with its terms, that is to say, pursuant to an agreement in writing and not otherwise. Even if that section can be construed as having any effect other than that of merely defining the limits to which the section applies, in my view, it in no way supports Mr. Coltman's argument, because the section provides that it shall apply if the subject-matter submitted to arbitration were the subject of a suit, and the whole scheme of the Act including the definition clause provides that the submission to arbitration must be a submission in writing. Therefore, in my view, that section in no way touches oral agreements for arbitration which were permitted by the common law and, in my opinion, still are permitted.

11. Section 3 amends the statutory law relating to arbitration in that it provides that certain words in Section 21 of the Specific Relief Act and certain sections of the Code of Civil Procedure shall not apply where the Indian Arbitration Act applies. The proviso is in these terms:

Provided that nothing in this Act shall affect any arbitration pending in a Piresidency-town at the commencement of this Act or in any local area at the date of the application thereto of this Act as aforesaid, but shall apply to every arbitration commenced after the commencement of this Act or the date of the application thereof, as the case may be, under any agreement or order previously made.

12. It has been strongly contended by Mr. Coltman that the words 'shall apply to every arbitration commenced after the commencement of this Act...under any agreement or order previously made' support his argument that this Act is exhaustive and compulsory, and that oral agreements to submit disputes to arbitration are no longer valid or legal. I do not agree with his contention. It is quite true that the words 'any agreement' would embrace both oral and written agreements. But I do not think that the latter part of the proviso means that if parties have made an oral agreement for arbitration, they shall be bound-to enter into a written submission, which, in my opinion, they would be obliged to do if the Act was to apply, seeing that the Act is made applicable only to an arbitration which is commenced after the commencement of the Act, and such an arbitration cannot by the very terms of the Act and the whole scheme of it be commenced except under a submission in writing. There is certainly no express provision in the Act, against an oral agreement for arbitration outside the Act, and I do not think that such a prohibition is implied in the latter part of the proviso.

13. The decision which the learned trial Judge relied on in support of his view that an oral agreement for arbitration was no longer legal in India was that of Mr. Justice Beaman in Rukhanbai v. Adamji I.L.R. (1908) Bom. 69 : 10 Bom. L.R. 366 With great respect to that learned Judge, I think that his view was wrong, and that that is not the law. The opinion that it is still open to parties to submit their disputes to arbitration by oral agreement even in an area to which the Indian Arbitration Act applies was expressed by the Madras High Court in Ponnamma v. Kotamma I.L.R. (1932) Mad. 85 In my opinion the learned Judges came to a right decision in that case, and I respectfully agree with them. A similar view has been taken in Ramautar v. Lingat Singh : AIR1931Pat92 where Mr. Justice Kulwant Sahay said (p. 94):

The reference to arbitration does not appear to have been by any written agreement between the parties. It must have been a verbal submission of the disputes to arbitration. There is nothing in law which requires a submission to arbitration to be in writing, and a parole submission is a legal submission to arbitration.

14. I respectfully agree with those observations, and inasmuch as I think that both the Code of Civil Procedure and the Indian Arbitration Act are not compulsory, but deal with methods of procedure for going to arbitration and enforcing awards, it is still, in my opinion, open, to those who choose to exercise the old common law right to refer disputes to arbitration by parol and to enforce awards made thereunder by suits.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //