Inder Dev Dua, J.
(1) This revision under section 115 of the Code of Civil Procedure against the order of the learned Commercial Subordinate Judge 1st Class, Delhi, dated 13-3-1968 has been placed before this Bench because of the importance of the question raised.
(2) The learned Subordinate Judge has, by the impugned order set aside the award dated 29-3-1967 on the ground that the arbitrator was guilty of misconduct because no notice was given to the party against whom ex parte proceedings were taken by him. The matter was, however, remitted back to the arbitrator for proceeding afresh from the stage when Shri Patanjal and Shri Om Prakash Mehra had last appeared before him. The arbitrator was further directed to make Shri W. N. Chowdhary a party to the arbitration proceedings so that all the interested parties may be represented.
(3) Before proceeding with the contentions raised before us, it is desirable to briefly recapitulate the facts and circumstances giving rise to the controversy before us. On 21-7-1962, Shri 0m Prakash Mehra wrote a letter to M/s Rawalpindi Theatres (P) Ltd., Chandni Chowk, Delhi (Ex. P. 5) which it is necessary to reproduce in extenso :-
'Iwrite to confirm that I am the rightly appointed legal representative of M/s Shanti Niketan Films, Bombay, Producers of the film 'WARRANT' and Financiers of M/s Padam Films, Delhi, the Distributor of the Picture 'WARRANT' for Delhi, & U.P. Circuits, I am enclosing herewith a letter of Authority issued by the above party in my favor.
'Ifurther confirm that I am entering into this arrangement with you after consulting Mr. Patanjal, the Prop. of the said firm M/s Shanti Niketan Films, Bombay, the Producers and this decision is within his knowledge,
'Ifurther confirm that you have agreed to write your letter dated 21-7-62 to the Motion Picture Association, Delhi informing them that you are withdrawing your claim against the picture 'Warrant' and enabling the release of this picture on my assuring you as under.-
(1)That I shall pay to Shri W. N. Chawdhary, 781, Nicholson Road, Kashmere Gate, Delhi, a sum of Rs. 9,500.00 from the Distributors share becoming due from 'Warrant' of two weeks run at Delite Theatre, New Delhi and Imperial Cinema, Paharganj.
(2)I declare that there is absolutely no lien of any type on the said share becoming due from above Theatre and that the said share shall nto be utilised in any way, whatsoever, other than meeting your dues as above said.
'I declare that you have agreed to write the above said letter to the Motion Pictures Association, Delhi on my assurances and representation and that if I had nto assured you as above, you would nto have written the said letter to the Motion Pictures Association, Delhi. It is understood that I am responsible to make good the deficit, if any, to cover Rs. 9,500.00. In case of dispute, R. L. Duggal of 29-D Ramnagar N. Delhi will be the sole arbitrator.
FORShanti Niketan Films : Bombay
SD/-Om Prakash Mehra,
RECEIVEDthe above mention-
EDletter dated 21-7-62 in
favorM.P.A. Delhi by me
FORits delivery to the M.P.A.
(4) The main question argued before us relates to the meaning and scope of the assurance No. 1 in this letter, according to which Shri Om Prakash Mehra promised to pay to Shri W. N. Chowdhary 9a sum of Rs. 9,500.00 from the Distributors share becoming due from 'Warrant' of two weeks run at Delite Theatre, New Delhi, and Imperial Cinema, Paharganj. According to the petitioners' counsel, Shri W. N. Chowdhary nto being a party to the arbitration agreement, the arbitrator cannto make an order for payment of Rs. 9,500.00 in favor of Shri W. N. Chowdhary, whereas the respondents' learned counsel Shri H. R. Sawhney has contended that Shri W. N. Chowdhary is, for all practical purposes, a party to the arbitration agreement and, in any event, he is an assignee of the subject-matter of the contract and, thereforee, entitled to claim payment of the amount in question by means of arbitration proceedings. In November, 1963, an application under section 20 of the Indian Arbitration Act was presented by M/s Rawalpindi Theatres (P) Ltd., in the Court of the Senior Subordinate Judge, Delhi, impleading therein Shri Patanjal and Shri Om Prakash Mehra, as respondents. It was averred in that application that Shri J. N. Chowdhary was the Managing Director of the applicant-company and was authorised to appoint Attorneys on behalf of the said company. By a special power of Attorney dated 20-3-1963, the said Shri J. N. Chowdhary had appointed Shri W. N. Chowdhary as a Special Attorney to take steps for recovery of the amount due to the applicant-company from respondent No. 1. Needless to point out that Shri Patanjal was respondent No. 1 in those proceedings, The power of attorney granted by Shri J. N. Chowdhary authorised Shri W.N. Chowdhary to take such legal steps for enforcement of the claim of M/s Rawalpindi Theatres (P) Ltd. as may be considered right and proper. That application was, according to the express averments contained therein, signed and verified by Shri W.N. Chowdhary who was stated to be fully conversant with the facts of the case and able to depose to matters relating to the dispute from his personal knowledge. In paragraph 22 of the application, assurance No. 1 in the agreement dated 21-7-1962 was repeated and in paragraph 25, it was complained that the respondents mentioned in the application had failed to perform their part of the agreement and had nto paid the amount due to the applicants M/s Rawalpindi Theatres (P) Ltd. under the agreement dated 21-7-1962. It was prayed that the agreement dated 21-7-1962 be ordered to be filed in the Court and steps for an award being made by the arbitrator, as provided by section 20 of the Indian Arbitration Act, be taken. This application was signed by Shri W. N. Chowdhary for applicants Rawalpindi Theatres (Private) Ltd. as their attorney. The following four issues were framed on the merits :-
'1. Whether the plaintiff-company is registered under the Indian Companies Act ?
2.Whether the petition has been filed, signed and verified by a duly authorised person on behalf of the plaintiff -company ?
3.Whether there is a valid arbitration agreement existing between the parties appointing Shri R. L. Duggal, as the sole arbitrator ?
4.If issue No. 2 is proved, whether the dispute be nto referred to the arbitration as alleged.'
(5) The learned Commercial Subordinate Judge (Shri A. K. Jain) on 11-6-1964 ordered that the arbitration agreement Ex. P-5 be filed and the matter in dispute be referred to the sole arbitration of Shri R. L. Duggal. In the order, it was observed, inter alia, that the application had been signed and verified by Shri W. N. Chowdhary, a person duly authorised on behalf of the company which was duly registered under the Indian Companies Act and it was added, to quote the exact words, 'there is a valid arbitration agreement existing between the plaintiff and the respondent appointing Shri R. D. Duggal, as the sole arbitrator.'
(6) On appeal, the learned Additional District Judge (Shri J. S. Mandher) by order dated 31-3-1965 reversed the order of the learned Commercial Subordinate Judge and dismissed the application referring the matter to arbitration on the ground that there were serious allegations of fraud against the appellant and admittedly even a criminal complaint had been filed in the Court of a Magistrate of 1st Class.
(7) On revision in the Punjab High Court (C.R. No. 417-D of 1965), H. R. Khanna, J. by his order dated 17-8-1966 set aside the order of the learned Additional District Judge and restored that of the Court of first instance. In the course of the hearing of the revision, the attention of the learned Judge was drawn to the statement of Shri W. N. Chowdhary, the Director and Special Attorney of the petitioner-company, in which he had stated in cross-examination that the complaint filed by the company against the opposite party had been dismissed in default and that in the complaint it had been alleged that the opposite party had played a fraud and cheated the petitioner-company regarding the amount due on the agreement. After noticing the ratio of the Supreme Court decision (Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak etc.(1)) cited both in the appeal before the learned Additional District Judge and on revision in the High Court, and other decisions cited before H. R. Khanna, J. the learned Judge observed as follows :-
'IT is stated that the dispute between the parties now is that the respondents had undertaken to pay Rs. 9,500.00 in accordance with the agreement reproduced above and as the respondents have nto paid that amount there is a dispute which needs adjudication. The dispute now between the parties, according to the learned counsel, is only with respect to the payment of Rs. 9,500.00. Reference in this connection has been made to the statement of W. N. Chowdhary, Director and Special Attorney of the petitioner, who has come into the witness-box as Public Witness 3 and who has deposed that the dispute between the parties was that the respondent were nto paying the money to the witness. It would appear from the above that the dispute, which needs adjudication and which is sought to be referred to the arbitrator, is only about the claim of Rs. 9,500.00 which, according to the petitioner, the respondents were bound to pay in terms of the agreement referred to above. Such a dispute can validly be referred to arbitrator and the court below, in my opinion, was nto justified in reversing the decision of the trial Court in this respect.'
(8) After this decision, the arbitrator apparently entered on the reference and in March, 1967, he filed an application under section 28 of the Arbitration Act in the Court of the learned Commercial Subordinate Judge, Shri D. C. Aggarwal, for extending time for making and signing the award by about two months. Incidentally, it may be pointed out that earlier in November, 1964, M/s Rawalpindi Theatres (P) Ltd., had filed an application under section 28 of the Indian Arbitration Act in the Court of the Commercial Subordinate Judge (Shri A. K. Jain) for extension of time for making the award and for condoning the delay. In that application, it was averred as follows :-
'the petitioner-company is only late by five days in filing this petition if it is held that this application should have been filed before the expiry of four month's time. The applicant was prevented by the delay in the decision of the appeal by Hon'ble Additional District Judge. The delay may, thereforee, be condoned and this Hon'ble court may be pleased to order that the award be made by the arbitrator by the 15th of February, 1965.'
(9) This application was dismissed on 27-4-1965 by the learned Commercial Subordinate Judge on the ground that the application filed under section 20 of the Arbitration Act had been dismissed by the learned Additional District Judge on appeal. On the application by the arbitrator, an ex parte order was made by the learned Commercial Subordinate Judge on 7-3-1967 which reads as under:-
'THISis an application under Section 28 of the Arbitration Act filed by Shri R. L. Duggal, sole arbitrator. It is alleged that after learning from the petitioner-company that the appeal to the High Court in petition No. 417-D/65 had been dismissed, he issued notices to the parties on 19-9-66, and 8-10-66, and that the petitioner appeared in pursuance of the notice but the respondents had nto been served. Thereafter, the claimant petitioner obtained an order for substituted service and it is said that a notice was published in the Times of India calling upon the respondents to appear before the arbitrator on 14-2-67. The arbitrator says that the respondents put in appearance on 14-2-67 through Shri Sham Sunder Gautam, Advocate. In these circumstances, there is good reason for extension of the time. So, time is extended for making the award till 7-5-67.'
(10) In April, 1967, an application was presented in the Court of the Commercial Subordinate Judge by Shri R. L. Duggal, Arbitrator under sections 14 and 17 of the Arbitration Act stating that he had signed and published his award dated March 29, 1967 and that he was therewith filing the award and the arbitra- corporation proceedings in Court. It was prayed that notices be issued to the parties of the filing of the award and the matter be proceeded with according to law. Objections under sections 30 and 33 of the Arbitration Act were raised to the award and the pleadings of the parties gave rise to four issues on the merits including, whether the arbitrator had no jurisdiction to determine the claim of Shri Chowdhary, whether the arbitrator was guilty of misconducting himself or the proceedings, and whether M/s Rawalpindi Theatres (P) Ltd. were entitled to a decree in terms of the award. The learned Commercial Subordinate Judge upheld the jurisdiction of the arbitrator to award the sum of Rs. 9,500.00 to Shri W. N. Chowdhary because of the agreement of reference as also because of the statement of claim. It was, however, held that the proceedings taken by the arbitrator against the respondents ex parte were vitiated on account of failure on the part of the arbitrator to give notice to the respondents about the extension of time granted by the Court and about his intention to proceed on a particular date and also his failure to give further notice to the respondents of his intention to proceed ex parte if they failed to appear on that date. On this view, the award was set aside. The learned Commercial Subordinate Judge also held that the decree could nto be passed in favor of Shri W. N. Chowdhary who was neither a party to the reference nor to the arbitration proceedings and was, thereforee, disentitled to enforce the award. M/s Rawalpindi Theatres (P) Ltd. were, however, held entitled to have a decree passed in terms of the award, though such a decree would, according to the Court, be infructuous being in favor of Shri W. N. Chowdhary and nto of M/s Rawalpindi Theatres (P) Ltd. The case was remitted back to the arbitrator for proceeding with the arbitration after giving proper notice to the respondents from the date when the respondents had last appeared before him. The arbitrator was also directed to make Sh. W. N. Chowdhary a party to the arbitration proceedings to ensure a proper representation of all the interested parties before him because Shri Chowdhary was virtually the only. affected party under the agreement of reference which had been upheld up to the High Court. It is this order which is now assailed before us, but the challenge is confined to the direction to implead Shri Chowdhary. Neither party has questioned the correctness of the order setting aside the award and remitting it back to the arbitrator.
(11) Shri M. L. Bagai, the learned Advocate for Shri Patanjal and Shri Om Prakash Mehra has very strongly argued that the Court below has acted without jurisdiction and, in any event, with material illegality and irregularity in the exercise of its jurisdiction in directing the arbitrator to make Shri W. N. Chowdhary a party to the arbitration proceedings. Having held that Shri W. N. Chowdhary was neither a party to the reference nor to the arbitration proceedings, and, thereforee, nto entitled to enforce the award, it was beyond the competence of the Court below to direct the arbitrator to implead Shri Chowdhary to the arbitration proceedings before him. The submission seems to me to be A well-founded.
(12) The Arbitration Act of 1940 being a consolidating and amending Act on the law relating to arbitration, we have to look to the provisions of the Act for discerning the legal position. 'Arbitration agreement' in this Act means a written agreement to submit present or future difference to arbitration, whether an arbitrator is named therein or nto and 'reference' as defined there in, means a reference to arbitration. Capacity to make-an arbitration agreement seems to me to be co-extensive with the capacity to contract under the law. In order to constitute a valid arbitration agreement, among other things, there should be a valid agreement, the terms of which are reduced to writing and the parties thereto should be ad idem in other words, the agreement of the parties should be established so that they can be held to be bound by .it, though the written instrument or instruments, if there are more than one containing the terms of agreement, need nto necessarily be signed by the parties bound by it. It is lawful to establish oral acceptance of the terms by the parties to the agreement, though the terms agreed must be reduced to writing. The subject-matter of the reference and the authority of the arbitrator in the reference arising out of an agreement between the parties has, thereforee, to be traced to the agreement of reference only. From the legal position just stated, it follows that third persons who are nto parties to the arbitration agreement or to the contract containing an arbitration clause and nto claiming under such parties, are nto bound by such agreement. And nto being bound, they would, as a general rule, be disentitled to enforce the agreement. The language of section 20 of the Arbitration Act seems also to support this view. This section empowers the parties to an arbitration agreement, when differences have arisen, which are covered by it, to apply to a Court having jurisdiction praying that the agreement be filed in Court. Indeed, it is also the general fundamental rule that only a person who is a party to a contract can sue on it. The existence of statutory or equitable exceptions to this rule do nto impinge upon its general fundamental character. Of course, if the subject-matter of the arbitration agreement is capable of assignment, then the assignee would step into the shoes of his assignor and be both bound by it and entitled to enforce it, but for this purpose, one has to look to the law relating to assignment of contractual rights and obligations and also to see whether in a given case, the assignee has exercised his right as such.
(13) Having stated the legal position as I understand it, I may turn to the decisions cited at the Bar. Shri Bagai has, in support of his submission, placed reliance on a Single Bench decision of the Punjab High Court sitting on Circuit at Delhi in Gian Chandra Hirday Mohan V. Prem Narain A4ahinder Mohan. (2) the headnote of which, so far as relevant, reads thus :-
'Cmade a gift of a house exclusively belonging to him in favor of his nephew G. Later C filled a suit for cancellation of the gift. The parties agreed to refer the dispute to arbitration. The arbitrator instead of confining himself to the matter in dispute proceeded to decide as to how the property was todevolve after C's death. The plaintiffs who were neither party to the suit nor the reference, were given a share in the property under the award. A decree on the basis of the award was passed. On C's death the plaintiffs, basing their claim on the award and the decree passed thereon, brought a suit for a share in the rents and profits of the house which was in exclusive possession of G.
HELD(i) that the plaintiffs had no locus standi to file the suit. As they were nto parties to the earlier suit or to the reference, they were nto bound by the award or the decree and, thereforee, they could nto claim any right under the award or the decree 2nd 6 All 322 (PC) and Air 1955 Nag 126, Rel. on.'
(14) The Nagpur decision in Chouthmal v. Ramchandra has also been cited by Shri Bagai. It has been observed in this decision that arbitrators have no power to go outside the reference and create trust or give directions regarding thereto and even if they do so, the Court should exclude that portion of the award from the decree. Shri Sahney has placed his reliance on the language of section 34 of the Arbitration Act and on an English decision reported as Shayler v. Woolf, In the English decision cited, the Court of Appeal, affirming the Court below held that the covenant before it had been expressly assigned and that the arbitration clause, nto being a personal covenant, was also assignable. As Shri Sawhney has placed principal, if nto exclusive reliance on this decision, we consider it appropriate to reproduce the relevant part of the judgment given by Lord Greene, N.R., with whom Morton and Somevell, L.JJ. agreed. Thus said the Master of the Rolls-
'THATonly leaves one point and that is the arbitration clause. It is said that the contract cannto be assignable because of the existance of the arbitration clause, inasmuch as such a clause is in its nature nto assignable or is only assignable (it is said) where the assigns are expressly mentioned in the clause itself or the contract which contains the arbitration clause is itself expressly declared to be assignable. In my opinion, these propositions are incapable of support in the wide way in which they are stated; nor does any of the authorities quoted to us in support of them really touch the point.
THEquestion whether an arbitration clause prevents a contract from being assignable must depend on the intention of the parties, and the nature of the contract will, of course, be very important. Quite apart from an arbitration clause, if the nature of the contract is one which makes it incapable of assignment, owing to its personal nature, there is no question, of course, of the assignability of the arbitration clause; but that an arbitration clause is assignable in its nature seems to me to be quite clearly contemplated by the Arbitration Act, 1889, S. 4, and it has been recognised in this Court in one of the authorities referred to, namely, Aspell v. Seymour (5).
Asi have said, apart from this arbitration clause, the agreement in this case is, in my opinion, quite clearly assignable. That is because, on its true construction, it is an assignable contract, that being the intention of the parties gathered from the document when read in the light of its subject-matter and the surrounding circumstances. It seems to me that the result of that must necessarily be that the arbitration clause also follows the assignment of the subject matter of the contract. There is nothing, I conceive, in principle or authority which would prevent that from taking place.
THEconsequence is that, in my opinion, this was a contract assignable by Mrs. Peacock and, as it was assigned by her in her conveyance to the present plaintiff, the benefit of the contract is now vested in him and he is entitled to sue upon it.'
(15) This decision was concerned with section 4 of the Arbitration Act 1889 (52 & 53 Vict.c.49), an English statute, which empowered the Court to stay proceedings where there was a submission. According to that section, if any party to a submission or any person claiming through or under him commenced any legal proceeding in any Court against any other party to the submission or any person claiming through or under him in respect of any matter agreed to be referred, then any party to such legal proceeding should apply to that Court to stay the proceedings. In an assignable contract, when assignment was held to have been made, the assignee was, in the reported decision, held entitled to the benefit of the contract and entitled to sue upon it. It is difficult to understand how the ratio of this case helps Shri Sawhney.
(16) Section 34 of the Indian Arbitration Act, like section 4 of the English Act, merely confers on the judicial authority before which legal proceedings have been commenced by a party to an arbitration agreement in respect of any matter agreed to be referred to arbitration, to stay those proceedings when moved by any other party to the agreement or any other person claiming under him in respect of the matter agreed to be referred. On the basis of this section, the direction of the Court below that Shri W. N. Chowdhary be made a party to the arbitration proceedings is nto easy to sustain. The fact that a person claiming under a party to an agreement is empowered to move the judicial authority, does nto establish that all outsiders can claim a right to enforce an arbitration agreement to which they are nto parties under the law. It is only those persons who claim under a party to an arbitration agreement who should, in addition to the parties themselves, be held entitled to claim its benefit and also be held bound by the obligations imposed thereby. Shri Chowdhary, it is quite clear on the present record, never claimed to assert his right as an assignee from M/s Rawalpindi Theatres (P) Ltd. On this view, it is unnecessary to express any considered opinion on the question whether section 4 of the English Arbitration Act and section 34 of the Indian Act are completely identical in their effect and scope. The submission forcefully pressed by Shri Sawhney on the authority of Shayler v. Woolf that Shri W. N. Chowdhary must be held to have been assigned the rights of M/s Rawalpindi Theatres (P) Ltd. under the terms of Ex.P. 5 is nto easy to uphold and I find no justification for the submission that the terms of Ex.P.5 purport to assign the right of M/s Rawalpindi Theatres (P) Ltd. under the contract to Shri W. N. Chowdhary. No other transaction serving as an assignment has been relied upon. The argument that the conduct of M/s Rawalpindi Theatres (P) Ltd. and that of Shri W. N. Chowdhary, in the course of the present litigation, should be held to amount to an assignment in favor of Shri W. N. Chowdhary is equally devoid of substance. It is noteworthy that Shri Chowdhary has nowhere, during the long course of this chequered litigation, claimed any right in himself as an assignee and indeed except as an Attorney for M/s Rawalpindi Theatres (P) Ltd. Uptil now, he has never even pretended to claim any right in his own personal capacity as distinct from his capacity as Attorney representing and prosecuting the claim of M/s Rawalpindi Theatres (P) Ltd.
(17) As a last resort, Shri Sawhney has submitted that this revision should be thrown out because there is no jurisdiction infirmity and the impugned order cannto be held to suffer from any illegality or material irregularity in the exercise of the lower Court's jurisdiction. I am unable to accept this contention. If Shri W. N. Chowdhary is nto a party to the arbitration agreement and if for this reason, he is nto entitled to claim adjudication of his personal right, then obviously, the direction given by the Court below is without jurisdiction, and is certainly tainted with a serious illegality and a material irregularity in the exercise of the jurisdiction vested in the Court below by law.
(18) The petitioner's objection that after setting aside the award, the Court below could nto remit the case back to the arbitrator, is clearly misconceived and seems to me to be contrary to the settled view, and indeed Shri Bagai, after half-heartedly pursuing it, gave up the attempt.
(19) For all the foregoing reasons, we allow this revision and delete the direction from the lower Court's order that the arbitrator should implead Shri W. N. Chowdhary as a party to the arbitration proceedings. It would of course be open to the arbitrator to adjudicate upon the rights of the parties to the arbitration agreement and it would certainly be open to him to decide whether or nto the amount of Rs. 9,500.00 had been paid to Shri W. N. Chowdhary as agreed to by Shri Om Prakash Mehra and if the amount has nto been so paid, what is its effect on the rights and liabilities of the parties to the agreement and to give the necessary relief to them in accordance with law. There would be no order as to costs.
S.K. Kapur, J.
(20) I agree