1. This appeal arises out of an order passed by the lower court dismissing an application filed by the appellants herein, who are defendants 1 and 2 in the suit, under S. 34 of the Arbitration Act, 1940, for stay of the suit, O. S. No. 82 of 1975 on the ground that there is an arbitration agreement between that there is an arbitration agreement between the parties to the suit.
2. Respondents 1 to 4 have filed a suit for partition and separate possession of three-fourth share in the suit properties belonging to respondents 1 to 3 and for recovery of maintenance said to be due to the 4th respondent. Respondents 1 to 3 and the appellants are brothers, being the sons of one Arunachala Chettiar who died leaving considerable properties. The 4th respondent is the widow of the said Arunachala Chettiar while respondents 5 and 6 are the wives of appellants 1 and 2 respectively. The said Arunachala Chettiar had executed a Will on 6-11-1958, bequeathing his properties equally in favour of all his sons. As no provision was made in the said will in favour of his wife, she disputed the Will in O. S. 32 of 1959. However, the said suit was compromised between the parties by the 4th respondent agreeing to receive maintenance at the rate of Rs. 350 per month from the sons. After the death of their father, Arunachala Chettiar, appellants 1 and 2 have been in management of the entire properties. Respondents 1 to 3 and their mother, the 4th respondent have now filed the suit for partition and maintenance, out of which this appeal arises, alleging fraud on the part of the appellants in the course of the management of the business and other properties of the family and complaining that from the income of the joint family, they have acquired properties benami in the names of their wives, respondents 5 and 6.
3. On receipt of the summons in the suit, the appellants filed an application under S. 34 of the Arbitration Act alleging that there is an arbitration agreement dated 3-1-1971, entered into between all the brothers, that under the said agreement, if any dispute arises regarding the partition and division of the properties between the sharers, the same should be referred to the arbitration of one S. Arumugaswami Nadar, Tirunelveli Jn. for his award and the parties will abide by the same, and that in the face of the said arbitration agreement dated 3-1-1971, the suit has to be stayed under Section 34 of the Arbitration Act. Respondents 1 to 4 resisted the said application for stay contending that the agreement dated 3-1-1971, set up by the appellants is not true and genuine, that the same had been created fraudulently by the appellants to prevent respondents 1 to 4 from getting their legitimate shares in the suit properties, and that even if the agreement dated 3-1-1971, is true and valid, having regard to the subject-matter of the suit and the reliefs claimed therein, the Court will be justified in rejecting the application for stay in exercise of its discretion. Thus, the main contest between the parties in the application under S. 34 of the Arbitration Act is as to the exercise and binding character of the agreement dated 3-1-1971, containing the arbitration clause.
4. The appellants had produced the original of the agreement dated 3-1-1971, which has been marked as Ex. B.4. They have also filed affidavits from two of the attestors wherein they have stated that all the brothers voluntarily signed the agreement. They have also filed an affidavit from Arumugasami Nadar, the arbitrator referred to in the said agreement, wherein he has stated that if reference is made to him by the parties as per the terms of the agreement dated 3-1-1971, he is willing to enter upon his duties and give his award in respected of the disputes between the brothers.
5. As against this respondents 1 to 4 had filed an affidavit from one of the attestors to the alleged agreement dated 3-1-1971, wherein he has stated that the parties to the agreement have not signed the same in his presence, and that when the agreement was brought to him for his signature, the document has already been signed by the parties. The lower court has proceeded to decide the question relating to the execution of the agreement in the light of the said affidavits without given any further opportunity to the parties to adduce other evidence, either oral or documentary. It felt that the versions given by the attestors to the agreement are not uniform and that there being a specific issue raised in the suit as regards the existence of the disputed agreement and the maintainability of the suit in the face of the said agreement, the question as to the existence of the agreement can be decided by trying that issue as a preliminary issue at the stage of the trial. The lower Court also took the view that as the agreement creates certain rights in favour of the petitioners 1 and 2 and that it cannot be admitted in evidence for want of registration. One other reason given by the lower Court is that the arbitrator having stated in the affidavit that if the parties had chosen to refer the matter he would arbitrate and the parties having chosen the court for getting their remedy, there is no purpose in staying the suit. Then the lower Court proceeded to say that as the matter involved in the suit being highly complicated and the stakes involved being very high, it would not be possible therefore, the suit need not be stayed. The further reason given by the Court below for not staying the suit is that respondents 4 to 6 not being parties to the alleged arbitration agreement, there cannot be an arbitration in relation to them. The order of the lower Court has been challenged by the appellants in this appeal on various grounds.
6. It is contended by the learned counsel for the appellants that the Court below has not given any specific finding as to the existence or otherwise of the agreement, Ex. B4 dated 3-1-1971, on the ground it can be decided later in the suit as a preliminary issue, and that the said approach of the lower Court is entirely erroneous. It is pointed out by the learned counsel that in an application for stay of the suit under S. 34 of the Arbitration Act, the Court has necessarily to decide the question as to the existence of the arbitration agreement on the basis of which the application for stay had been filed and that it is not proper for the Court to postpone the decision on that question to be decided in the suit and dismiss the application for stay on the ground that there is no case for granting stay under S. 34 of the Arbitration Act.
7. A perusal of the order of the lower court makes it clear that it has not given any finding on the question as to whether the agreement, Ex. B4 dated 3-1-1971, set up by the appellants is true and genuine. I do not see how the lower court can proceed to dismiss the application for stay under S. 34 without going into the question as to whether there is a binding arbitration agreement between the parties or not. The existence of the arbitration agreement is the foundation for an application under S. 34 and therefore, the person seeking a stay under that provision has to establish that there is an arbitration agreement touching the matter in dispute in the suit and that therefore, the parties should have resort to arbitration. Such a basis question cannot be postponed to the stage of the trial. Even if the existence of the arbitration agreement is disputed by the plaintiff, the application under S. 34 cannot be dismissed outright without deciding the question as to the existence of the agreement. This position is clear on a conjoint reading of Ss. 32 to 34 of the Arbitration Act. Section 32 bars all suits contesting the arbitration agreements or awards. That section specifically says that the question regarding the existence, effect or validity of an arbitration agreement or award cannot be gone into in a suit. Section 33 enables a party to an arbitration agreement or award or any person claiming under him to challenge the existence or validity of an arbitration agreement or award in an application filed by him for the purpose.
8. In Muthu Kutti v. Varee Kutti, , Satyanarayana Rao, J., while dealing with a similar order passed under S. 34 of the Arbitration Act, expressed the view that as the very foundation of the jurisdiction of the Court to stay the trial of the suit under S. 34 is the existence of an arbitration agreement, the Court has necessarily to find whether the agreement exists between the parties. The following observations of the learned Judge are very pertinent-
"The very foundation for the jurisdiction of the Court to stay the trial of a suit under Section 34 is the existence of an arbitration agreement. The applicant comes to Court and asserts that there is such an agreement while the other side either disputes the truth of such an agreement or admitting its truth pleads that it is invalid by reason of other vitiating circumstances which are open under law for the objector to raise and prove. I do not see any reason why in that event when the question was raised and validity of the jurisdiction of the Court depends upon the result of its decision on that question, the Court should not try that issue. Section 33, in my opinion, gives an independent right to a person who wishes to challenge the existence or validity of an arbitration agreement or award and to anticipate the other side and to initiate proceedings to have those questions determined before hand. It does not, in my opinion, prohibit the Court acting under S. 34 of the Act from deciding a question which is raised before it for its decision and the decision on which alone would depend the exercise of its jurisdiction. From this point of view it seems to me that the learned Subordinate Judge was not justified in preventing the plaintiff from adducing evidence on the question of fraud and misrepresentation put forward by him. It necessary, the counter filed by the plaintiff may be treated as an application under S. 32, but I think even this it required."
The same view has been taken by a Division Bench of the Bombay High Court in Bhagwandas v. Atmasing. AIR 1945 Bom 494. In that case, the defendant in the suit made an application for stay under S. 34 alleging an arbitration agreement and the plaintiff denied the existence of such an agreement. It was argued on behalf of the defence in that case that in view of Ss. 32 and 33 of the Arbitration Act, the plaintiff was not entitled to challenge the existence of an arbitration agreement in that proceeding that it was incumbent upon him if he wanted to have that question decided to take out a substantive application under S. 33 of the Act challenging the existence of an arbitration agreement and obtain a decision of the Court on that point. The Division Bench, however, took the view that as the effect of Ss. 32, 33 and 34 was not to preclude the respondents in an application under S. 34 to set up the defence of non-existence of an agreement which was propounded by the other side, there is no impediment for the Court to adjudicate upon the existence of the arbitration agreement in an application under S. 34. The above two decisions clearly indicate that in an application under S. 34, if the existence of an arbitration agreement is disputed by the other side, the Court can adjudicate on that question without a separate application under S. 33 and that if the necessary counter affidavit filed in an application for stay can be taken as an application under S. 33 and the question as to the existence of an agreement decided in that application itself.
9. Learned counsel for the respondents 1 to 4, however, brings to my notice a decision of a Division Bench of this Court in Dinasari Ld. v. Hussain Ali and Sons, in support of his contention
that once the existence of an arbitration agreement is disputed in an application under S. 34, the Court has no power to order stay of the suit. In that case, the court expressed the view that as the existence of an admitted agreement is a necessary pre-requisite for an arbitrator undertaking to decide a dispute and as it is not open to an arbitrator to decide whether such an agreement exists or not a suit in which the agreement is denied cannot be stayed under S. 34 of the Act. However, it is seen from the facts of that case that the written agreement relied on by the defendant was not an agreement as contemplated under S. 2(a) of the Indian Arbitration Act, and therefore, the Court proceeded on the basis that as there is no agreement as contemplated by the Arbitration Act, the suit cannot be stayed under S. 34. It is not possible for me to understand the said decision as laying down that wherever an arbitration agreement is disputed in an application under S. 34, the Court is not entitled to go into the question whether the arbitration agreement exists or not. No doubt, as pointed out by the learned Judges, it is not open to the arbitrator to decide whether the arbitration agreement as such exists or not. However while dealing with an application under S. 34, where the existence of an arbitration agreement is asserted by one party and denied by the other, the Court has naturally to decide that question for the purpose of granting or refusing stay of the suit sought for. Even if such a question could not be decided strictly under S. 34, S. 33 enables the Court on an application filed by the party under S. 33, who disputes the existence of the agreement, to decide that question. It cannot, therefore, be said that the Court is powerless to decide the dispute as to the existence of an agreement and that such a question can be decided only in the suit. Since the Court has got the power to decide the question as to the existence of an arbitration agreement under S. 33 on an application filed by the plaintiff, it is too technical to say that the Court cannot decide that question strictly under S. 34 as the counter affidavit filed therein denying the existence of the agreement can be treated as an application under S. 33 challenging the existence or validity of the arbitration agreement and when such challenge is made, the Court can decide that question in exercise of its jurisdiction under S. 33 in the course of disposing of the application under S. 34. I cannot, therefore, agree with the learned counsel for the respondents 1 to 4, that once an arbitration agreement is disputed, the Court has naturally to reject the application for stay under S. 34.
10. As already stated, in this case the Court has not given any finding that the arbitration agreement set up by the appellants is not true or valid. The contention of the learned counsel for the appellants is that in the event of the court not accepting the affidavits filed by them to prove the existence of the agreement, they must be given an opportunity to establish the existence of the agreement by other evidence, oral and documentary, but, that the lower court has not granted any opportunity to the appellants to establish the existence of the agreement. Perhaps the lower court proceeded on the basis that the question as to the existence of the arbitration agreement has to be decided only on affidavits in view of S. 33. It is true that S. 33 says that the Court shall decide the question as to the existence or validity of the arbitration agreement on the basis of affidavits. But the proviso to that section enables the Court, when it deems it just and necessary, to take further evidence. If the lower Court felt that no decision could be rendered on the basis of the affidavits or the affidavits filed are quite inconclusive on the question in dispute, it could call upon the parties to substantiate their case by adducing further evidence. In view of the above provisions the lower Court should have granted and opportunity to both sides to prove or disprove the existence of an agreement, as the case may be. In the decision of Satyanarayana Rao, J. referred to above, the trial Court refused to take evidence that was offered by the plaintiff to show that the arbitration agreement is vitiated by fraud and misrepresentation, on the ground that under S. 34 no evidence on the question of validity of the arbitration agreement could be taken and that it was not incumbent on it to take evidence. The learned Judge held that the trial Court was not justified in preventing the plaintiff from adducing evidence on the question of fraud and misrepresentation put forward by him. I am, therefore, of the view that the lower Court was not justified in this case in not allowing the appellants to adduce further evidence in the case, and in dismissing their application for stay without giving any finding as to the existence of the agreement. Since the question of exercise of discretion to grant stay will arise only after a proper decision is rendered on the question as to the existence or the validity of the arbitration agreement, the other reasons given by the Court below for rejecting the application for stay have to be set aside and the entire matter has to be remitted for fresh disposal by the lower Court.
11. The appeal is, therefore, allowed and the matter is remitted to the lower Court for a fresh disposal after giving an opportunity to both sides to adduce such evidence as they consider necessary, both oral and documentary, in support of their respective contentions and after giving a specific finding on the question as to the existence and validity of the arbitration agreement set up by the appellants. No costs.
12. It is seen that in the counter affidavit filed by the respondents 1 to 4 in the application under S. 34, the invalidity of the arbitration agreement has not been specifically pleaded, though it appears to have been argued at the stage of the hearing of the application that the arbitration agreement, in so far as it relates to the third respondent, who is said to be insane cannot have any validity. Now that the matter has been remitted to the lower Court for a proper adjudication as to the existence and validity of the agreement, respondents 1 to 4 are permitted to file a further counter affidavit setting out clearly the contentions as to the invalidity of the arbitration agreement. If such a counter affidavit is filed by respondents 1 to 4, the appellants will have an opportunity to file a reply thereto. Having regard to the subject-matter in dispute between the parties in this case the lower Court is directed to pass final orders in the application within two weeks from this date.
13. Appeal allowed.