1. This is an application in revision directed against a decree passed by the Judge of Small Cause Court at Muzaffarnagar dismissing the plaintiff-applicant's suit for recovery of a sum of Rs. 210 on foot of a promissory note alleged to have been executed by defendant 1 in favour of defendant 2, from whom the plaintiff took an assignment of his rights under the promissory note. The suit has been dismissed by the lower Court in terms of an award made by a certain arbitrator appointed by the plaintiff and defendant 1. Defendant 2 was no party to the agreement to refer. The only ground on which the decree of the lower Court is assailed is that, as defendant 2 did not join in the agreement to refer, the reference and the award made in pursuance thereof are illegal and void. Para. 2, Schedule 2, Civil P.C., provides that 'where in any suit all the parties interested agree that any matter in difference between them' be referred to arbitration, they may apply to the Court for an order of reference. Para. 3 leaves no option to the Court, which must make a reference on the agreement to refer being filed by all the parties interested in the controversy to which the reference relates.
2. As was was held in Haswa v. Mahbub (1911) 8 ALJ 645, the question whether a party is interested or not in a reference to arbitration depends upon his position at the time when the reference was made. There can be little doubt that it was open to the plaintiff to withdraw his suit against defendant 2 and to have him discharged from the array of the parties before agreeing with defendant 1 to have the controversy between them decided by an arbitrator. In that event the only parties to the suit would have been the plaintiff on the one side and defendant 1 on the other. A reference to the plaintiff shows that the plaintiff claimed on foot of the promissory note as against defendant 1 and on foot of the assignment as against defendant 2. If the plaintiff had withdrawn his claim against defendant 2 or discharged him from the array of parties which would have amounted to withdrawal as regards him, he would have ceased to be a 'party' though interested in the issue arising between the plaintiff and defendant 1. In such a case a reference could be made at the instance of the plaintiff and defendant 1. The learned advocate for the opposite-party maintains that defendant 2 was in fact discharged by the plaintiff immediately when the agreement to refer was entered into between him and defendant 1. I have to examine the record to ascertain if this contention is well founded. The suit was instituted on 13th June 1931. The relief claimed against defendant 2 was that:
in case defendant 1 be found to have made any payment to defendant 2 in respect of the promissory note, a decree for the entire sum claimed be passed against defendant 2.
3. There is some ambiguity in the last paragraph of the plaint as regards the exact relief claimed by the plaintiff against defendant 2. It does not stand to reason that defendant 2 should be liable for the entire amount due under the promissory note in case he is found to have realized any part of the money due thereunder. What probably is meant is that, in case defendant 2 is found to have recovered part of the debt assigned to the plaintiff, a decree in favour of the latter be passed against defendant 2 for the amount which the latter actually realized from the debtor, viz., defendant 1. This point however is not material at this stage. What is important in this connection is that the plaintiff deliberately impleaded defendant 2, whom he alleged to be his assignor, in respect of the debt to which the promissory note in suit related. It is perfectly clear that wholly apart from the relief claimed by the plaintiff against defendant 2, the latter is interested in the controversy between his assignee, the plaintiff, and the alleged debtor, defendant 1. The defence of defendant 1 was that the promissory note in suit was fictitious and without consideration. If it be found that the assignment by defendant 2 in favour of the plaintiff was for valuable consideration and if it be further found, on the plea taken by defendant 1, that the promissory note in suit was fictitious and without consideration, there can be no doubt that the plaintiff would he entitled to damages from his assignor in a separate suit at least to the extent of the consideration which passed from one to the other on assignment. Therefore, the circumstance that the relief of damages has not been actually claimed in the plaint will not make defendant 2 any the less interested in the controversy between the plaintiff and defendant 2. The learned advocate for the opposite party pointed out that a suit for damages, such as the plaintiff might in certain eventuality be entitled to maintain against defendant 2 is not cognizable by a Court of Small Causes. This may be so, but if defendant 2 has been impleaded as a defendant and his own rights and liability are in any way affected by the issues arising between the plaintiff and defendant 1, he cannot be considered to be a pro forma defendant. He is as much interested in meeting the defence of defendant 1 as the plaintiff himself, because, as already stated, if defendant 1's plea prevails, defendant 2 would be exposed to a claim for damages by the plaintiff.
4. The suit was fixed for final disposal on 29th January 1932. It was stated by the plaintiff and defendant 1 that:
We appoint Habrbur Rehman, son of Ahmad Hasan, caste Syod, resident of villago Bagra, as arbitrator We shall be bound and shall accept any decision which may be given by the arbitrator after hearing or without hearing evidence and on open or secret inquiries The defendant Qabul Singh is exempted for the purpose of arbitration '(ba gharz salisi bari kiya jata hai')
5. The order of reference makes no mention of the exemption, all it records is that the case be 'referred for decision to the arbitrator appointed by the parties.' The plaint was not amended, and defendant 2 continued to figure as a party on the record. The award found that the promissory note in suit was fictitious and further that the assignment by defendant 2 in favour of the plaintiff was also fictitious. It may be said that the latter part of the award, so far as it relates to the assignment by defendant 2 to the plaintiff, is outside the reference and of no effect. It is contended by the learned advocate for the respondent that the intention of the plaintiff and defendant 1 was that defendant 2 be discharged from the suit, in other words, the plaintiff intended to withdraw his suit as against defendant 2. I do not think the plaintiff altogether discharged defendant 2. It was expressly started that the defendant 2 was exempted for the purpose of arbitration, which implies that, for all other purposes, he is to remain a party to this suit. The words to which reference has been made above, are more compatible with the hypothesis that the plaintiff desired the controversy between himself and defendant 1 to be decided by the arbitrator and if after the award being filed, it became necessary to go into the question arising between the plaintiff and defendant 2, it should be decided by the Court.
6. It is not necessary for me to express an opinion as to whether it is open to some parties in a pending litigation to refer any controversy between them to arbitration, leaving the difference between one of them and Court. It was held in Haswa v. Mahbub (1911) 8 ALJ 645, already referred to, that the Code does not contemplate a reference to arbitration between the plaintiff and one of the two defendants and a trial between the plaintiff and another defendant. The point however does not arise before me, as on the construction which I place upon the plaint and on the agreement to refer, defendant 2 was interested in the controversy between the plaintiff and defendant 1 and that he remained a party to the suit to the end. In this view, a reference made only at the instance of the plaintiff and defendant 1 was in contravention of para. 1, Schedule 2, Civil P.C., and an award made in pursuance of such reference was not valid. It follows that the decree passed by the Court below is based on an invalid award and must be set aside. Accordingly, I allow this revision, and set aside the decree passed by the lower Court and remand the case for disposal according to law. Costs shall abide the result.