1. This is a defendants' application in revision under Section 25, Small Cause Courts Act. The plaintiff entered into certain contracts with the Indian Steel and Wire Products Ltd., Tatanagar, on 18th and 19th April 1939. The Indian Steel and Wire Products Ltd., Tatanagar, were represented by their sole selling agents for West U.P., the Cawnpore Steel Company Ltd. The contracts are on printed forms which are on the file of this case and are marked Exs. D, B and P. The plaintiff's case is that there was some delay on the part of the Indian Steel and Wire Products Ltd., Tatanagar, in despatching the goods contracted for and during that period of delay the railway freight was increased by two annas in the rupee and the plaintiff had, therefore, to pay a much larger freight than he would have paid if the defendants had carried out their part of the contract promptly and supplied the goods at the time when they were bound to supply the same. On these allegations the plaintiff claimed from the defendants the excess railway freight that he had to pay by reason of the delay in the supply.
2. The defendants applied under Section 34, Arbitration Act (10 of 1940) and alleged that in the contract of supply there was a clause under which it was necessary that the matter should be referred to arbitration and the hearing of the suit should remain stayed till the decision by the arbitrators. The plaintiff, however, submitted that in the events that had taken place the arbitration clause had become nugatory and the suit could, therefore, be no longer stayed under Section 34, Arbitration Act. The learned Judge of the Court of Small Causes held that the contention of the plaintiff was right and refused to refer the matter to arbitration and stay the suit as provided for by Section 34, Arbitration Act. It is against that order that the defendants have filed this revision under Section 25, Small Cause Courts Act. I have already mentioned that the contract of supply is dated 18th and 19th April 1939 and the said contract is subject to the following Clause (5) at the back:
Any dispute, arising out of this indent, of whatever nature, shall, unless amicably settled, be referred to the arbitration of two Indian iron merchants, residing at Cawnpore, one to be chosen by each party, and of their umpire, who shall be named by the arbitrators in the event of they themselves being unable to agree. In case the purchasers fail to nominate an arbitrator within three days from receipt of notice from the sellers, the latter are at liberty to appoint sole arbitrator and buyers hereby agree that the award shall be referred in the law Court under the provisions of the Arbitration Act...
3. The plaintiff on 16th November 1942, gave a notice to the defendants' managing agents through B. Tulshi Ram Gupta vakil, claiming Rs. 209-8-0, the increased freight. It is mentioned in this notice Ex. A that unless the amount of Rs. 209-8-0 is paid within a week a suit for recovery of the said amount will be filed. The defendants sent a reply to the said notice on 3rd December 1942 in which they repudiated their liability and said that if a suit was filed it would be defended. Neither the plaintiff nor the defendants made any mention of the arbitration clause. After the exchange of the said notices, the plaintiff filed this suit on 11th December 1942. The learned Judge of the Court of Small Causes has taken the view that in case the plaintiff who was the purchaser had failed to nominate an arbitrator within three days from the receipt of notice from the sellers, the latter, that is, the sellers were at liberty to appoint a sole arbitrator and as the defendants did not appoint a sole arbitrator the learned Judge held that the defendants could not now rely on Section 34, Arbitration Act. To my mind, the learned Judge has entirely misunderstood this particular condition in the agreement. The clause quoted above provides that any dispute arising out of this agreement shall be referred to the arbitration of two Indian iron merchants residing at Cawnpore. Then the clause goes on to provide as to how these two arbitrators are to be appointed and it is mentioned that if the purchaser in spite of a notice to that effect to appoint an arbitrator fails to do so, the sellers will have the right to appoint a sole arbitrator. In this case no party gave any notice to the other party to appoint an arbitrator and no question therefore of a party having the right to appoint a sole arbitrator really arose and the sentence relied on by the lower Court is, to my mind, wholly irrelevant and it could not be said that by reason of anything not done by the defendants the clause as regards reference to arbitration became nugatory.
4. To my mind, the fact that the defendants did not in their notice dated 3rd December 1942, mention anything about arbitration did not put an end to their right to claim that the matter would be decided by the arbitrators as provided for in Clause (5) of the agreement. My view is supported by a decision of the Madras High Court reported in Anglo Persian Oil Co. v. Panchapakesa Aiyar ('24) 11 A.I.R. 1924 Mad. 336. Before the passing of the new Arbitration Act there used to be serious controversy about the question as to whether the jurisdiction of the Court to entertain a suit could be taken away by the parties agreeing to refer a dispute to an arbitrator. The new Arbitration Act has made that point quite clear and Section 34, Arbitration Act provides that if there is a clause in the agreement that the matter shall be referred to arbitration the Court should refer the matter and stay the suit unless there is sufficient reason why the matter should not be so referred to arbitration. In this case the Court below has not given any reason why the matter should not be referred and its view that the arbitration clause has become nugatory is, to my mind, erroneous. I, therefore, set aside the order of the Court below and direct that the learned Judge will now hear the application filed on behalf of the defendants in accordance with Section 34, Arbitration Act and dispose of the same according to law. The costs of this revision will abide the result.