1. This is an appeal under Clause 15 of the Letters Patent from the judgment of a Division Court of two Judges who were equally divided in opinion in an appeal from original decree.
2. On the 5th August 1911, the present suit was instituted by the plaintiff respondent against his three brothers for partition of joint properties and for incidental reliefs. It appears that two days previously the parties had entered into an agreement to refer the matters in controversy to the arbitration of three persona mentioned in the document and to abide by their decision. The defendant in his written statement urged that the suit was not maintainable in view of this agreement of arbitration. The Subordinate Judge held that Section 21 of the Specific Relief Act did not operate as a bar, as the institution of the suit did not constitute by itself a refusal by the plaintiff to perform the contract of arbitration. In support of this view reference was made to the decision of Wilson, J., in Koomud Chunder Dass v. Chunder Kant Mookerjee 5 C. 498 ; 5 C.L.R. 284 ; 2 Ind. Dec. (N.S.) 925. The suit was then tried on the merits and a decree made in favour of the plaintiff. On appeal to this Court, it was urged that the suit was barred under Section 21 of the Specific Relief Act. Fletcher, J., overruled this contention on the authority of the decisions in Koomud Chunder Dass v. Chunder Kant Mookerjee 5 C. 498 ; 5 C.L.R. 284 ; 2 Ind. Dec. (N.S.) 925 and W. Crisp v. Adlard 23 C. 956 ; 12 Ind. Dec. (N.S.) 635. Shamsul Huda, J. held, on the other hand, that the decision in Ram Chandra Pal v. Krishna Lal Pal 17 Ind. Cas. 600 ; 17 C.W.N. 351 supported the contention of the defendants. The result was that Fletcher, J., dismissed the appeal and Shamsul Huda, J., allowed the appeal, so that under Section 98(2) of the Civil Procedure Code, the decree of the Subordinate Judge stood confirmed. The present appeal is directed against that decree.
3. The appeal was argued at first on the assumption that the rights of the parties were governed by Section 21 of the Specific Relief Act It was urged with considerable force that there was really no conflict in principle between the decisions in Koomud Chunder Dass v. Chunder Kant Mookerjee 5 C. 498 ; 5 C.L.R. 284 ; 2 Ind. Dec. (N.S.) 925 and Ram Chandra Pal v. Krishna Lal Pal 17 Ind. Cas. 600 ; 17 C.W.N. 351 and that the conclusion in each case was based upon its special facts. In the former case, the defendant, who set up the usual arbitration clause in a mercantile contract as a bar to the suit, had ample opportunity to claim a reference to arbitration before the plaintiff came into Court, but had never expressed a wish to go to arbitration; in these circumstances, the plaintiff could not justly be deemed to have refused to perform the agreement. In the latter case, there was an express refusal antecedent to the suit. On the other hand, the language used by Patheram, C.J., in W. Crisp Adlard (2) may, perhaps, be open to comment, because the conduct of the plaintiff antecedent to the suit, followed by its institution, may indicate that he has refused to perform the agreement of arbitration, so as to bring into operation the provision of Section 21 of the Specific Relief Act. When we look to the facts of that case, it seams probable that all that was intended to be decided by this Court was that refusal to go to arbitration pendente lite did not bar a suit for which there was a good cause of action at the data of institution. It is needless, however, to discuss this aspect of the matter in detail, an, at the conclusion of the arguments, it transpired that Section 21 of the Specific Relief Act had no application to the case.
4. Section 89(1) of the Civil Procedure Code provides as follows:
Save in so far as is otherwise provided by the Indian Arbitration Act, 1899, or by any other law for the time being in force, all references to arbitration, whether by an order in a suit or otherwise, and all proceedings thereunder shall be governed by the provisions contained in the second schedule.
5. One of the provisions contained in the Second Schedule mentioned, is in the following terms:
22. The last thirty-seven words of Section 21 of the Specific Relief Act, 1877, shall not apply to any agreement to refer to arbitration or to any award to which the provisions of this schedule apply.
6. The words of Section 21 of the Specific Relief Act thus rendered inapplicable are as follows:
But if any person who has made such a contract (that is, a contract to refer present or future differences to arbitration) and has refused to perform it, sues in respect of any subject which he has contracted to refer, the existence of such contract shall bar the suit.
7. The position then is that Sub-section 1 of Section 89, Civil Procedure Code, which is framed in very general terms, read with paragraph 22 of the Second Schedule, makes inapplicable, to all arbitration agreements and awards governed by the schedule, the concluding provision of Section 21 of the Specific Relief Act. There is no room for controversy that in the present case, the arbitration agreement is governed by the Second Schedule and may form the subject-matter of an application under paragraph 17 to file it in Court. Consequently, the concluding provision of Section 21 of the Specific Relief Act, which would otherwise have barred the suit instituted in contravention of the arbitration agreement, is of no assistance to the defendant. At the same time, the following words of Section 21 retain their place:
And save as provided by the Code of Civil Procedure and the Indian Arbitration Act, 1899, no contract to refer present or future differences to arbitration shall be specifically enforced.
8. Thus the defendant can neither seek specific performance of the arbitration agreement nor set it up as a bar to the suit brought against him in contravention of the agreement. What then is the remedy of the defendant? The answer is provided by paragraph 18 of the Second Schedule of the Civil Procedure Code, which is in these terms: Where any party to any agreement to refer to arbitration, or any person claiming under him, institutes any suit against any other party to the agreement, or any person claiming under him in respect of any matter agreed to be referred, any party to such suit may, at the earliest possible opportunity and in all cases where issues are settled at or before such settlement, apply to the Court to stay the suit; and the Court, if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the agreement to refer to arbitration, and that the applicant was, at the time when the suit was instituted and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, may make an order staying the suit.'
9. The result of this provision is that when the Court is apprised that the suit has been instituted in contravention of an arbitration agreement, the Court has a discretion to stay the suit. Indeed, as Lord Selborne said in Willesford v. Watson (1873) 8 Ch. App. 473 at p. 480 ; 42 L.J.C 447; 28 L.T. 428 ; 21 W.R. 350: 'if parties choose to determine for themselves, that they will have a domestic forum instead of resorting to the ordinary Courts, then since that Act of Parliament (that is, the Common Law Procedure Act, 1854, Section 11, which corresponds to paragraph 18 of the Civil Procedure Code) was passed, a prima facie duty is cast upon the Courts to act upon such an agreement.' As Sir George Jessel put it in Hodgson v. Railway Passengers' Assurance Co. (1882) 9 Q.B.D. 188: 'The plaintiffs are in the position of a party applying, and if there is any reason why the matter should not be referred to arbitration, it is their duty to bring it forward and present it to the Judge, and if they cannot do so, the Judge is quite justified in being satisfied that there is no reason.' The burden, therefore, lies on the plaintiff to show that some sufficient reason exists why the matter should not be referred to arbitration, and not on the defendant to show that no such reason exists; it is the prima facie duty of the Court to act upon the agreement between the parties: Lyon v. Johnson (1889) 40 Ch. D. 579 ; 58 L.J. Ch. 626 ; 60 L.T. 223 ; 37 W.R. 427 and Clegg v. Clegg (1890) 44 Ch. D. 200 ; 59 L.J. Ch. 520 ; 62 L.T. 821 ; 38 W.B. 638. In the case before us, the appropriate course to follow would have been for the defendant to obtain a stay of the suit and then on an application by either party under paragraph 17 (1) a reference to the arbitrators by the Court under paragraph 17 (4).
10. A reference to the history of the legislation on this subject in India and in England confirms the view we take as to the rights and obligations of the parties in the events which have happened here. Section 28 of the Indian Contract Act, 1872, invalidated agreements in restraint of legal proceedings for the enforcement of rights in the ordinary tribunals. The first exception, however, saved contracts to refer to arbitration future disputes between the parties; it further provided that suits might be brought for specific performance of such agreements and that the existence of the agreements might be pleaded as a bar to suits instituted in contravention thereof. The second exception saved contracts to refer questions that have already arisen. The second Clause of the first exception was repealed by the Specific Belief Act, 1877; Section 21 barred suits for specific performance of such arbitration agreements, but preserved the right to set them up as a bar to suits brought in defiance thereof. The Indian Arbitration Act, 1899, which has a restricted local application, excluded by Section 3 the operation of the last thirty-seven words of Section 21 of the Specific Belief Act and by Section 19 conferred on the Court power to stay proceedings where there was a submission. The Civil Procedure Code, 1908, was, in respect of the matter now before us, modelled on the provisions of the Indian Arbitration Act, 1899; paragraph 22 corresponds to Section 3 and paragraph 18 to Section 19. The result of these legislative enactments is to bring the law here substantially in conformity with the law in England. The successive stages of the development of that law are indicated by Vaughan Williams, L. J., and Fletcher Moulton, L. J. in Doleman and Sons v. Ossett Corporation (1912) 3 K.B. 257 ; 81 L.J.K.B. 1032 ; 107 L. T. 581 ; 76 J.P. 457 ; 10 L.G.R. 915. In Mitchell v. Harris (1793) 2 Ves. Jr. 129 at p. 137 ; 4 Bro. C.C. 311 ; 30 E.R. 557 Lord Lough Borough, L. C repudiated the suggestion that an agreement to refer, where no reference had taken place, would stop a Court of law, as also the idea of a bill to enjoin a party from proceeding at law under a notion of giving effect to such a covenant. Indeed, it appears to have been treated in later cases as settled law that an agreement to arbitrate did not oust the jurisdiction of the Court and the pendency of an arbitration was a bad plea: Thompson v. Charnock (1799) 8 T.R. 139 ; 101 E.R. 1310 and Harris v. Reynolds (1845) 7 Q.B. 71 ; 14 L.J.Q.B. 241 ; 9 Jur. 808 ; 115 E.R. 414. In the case last mentioned, Lord Danman, C.J., ruled that the pendency of an arbitration was no answer to an action for recovery of a debt, and the plea as a plea in bar was clearly bad. The defendant was consequently in a position of great disadvantage, and his remedy appears to have been limited to a suit for damages for breach of contract. This was obviously unsatisfactory, and led to the enactment of Section 11 of the Common Law Procedure Act, 1854. The object of the Legislature was to enable effect to be given to the arbitration agreement before the action was tried, and this was achieved by the provisions that the action might be stayed by the order of a Judge made in the exercise of his discretion. This was reproduced in Section 4 of the Arbitration Act, 1889 (52 & 53 Vic. Order 49). We may add that our conclusion is in harmony with the view adopted in the cases of Sheo Babu v. Udit Narain 24 Ind. Cas. 490 ; 12 A.L.J. 757 and Appavu v. Seeni 42 Ind. Cas. 514 ; 41 M. 115 ; 33 M.L.J. 177 ; 6 L.W. 243.
11. The substance of the matter thus is that for the determination of the controversy between the parties, there were two competent tribunals available, the Court and the arbitrators. The plaintiff contracted to choose the latter; he has in fact taken the former. His opponents are not allowed to enforce specific performance of the contract or to plead the contract as a conclusive bar to the suit; but the law permits them to apply to the Court to stay the suit in the exercise of its judicial discretion, so as to enable either of the parties to obtain a reference to the arbitrators. This, the true aspect of the situation, has been overlooked till the concluding stage of this protracted litigation.
12. The result is that this appeal is allowed and the decree of the Court, made in affirmance of that of the Subordinate Judge, set aside. The suit is remitted to the Court of first instance to be taken up at the stage in which it was when the issues were framed. The Court will first determine, whether the suit should be stayed under paragraph 18 of the Second Schedule of the Civil Procedure Code. If an order for stay is made, then either party may take proceedings under paragraph 17. If the suit is not stayed it will be retried. But we may point out that under Section 104, Sub-section 1, Clause (e), an appeal lies from an order staying or refusing to stay a suit under paragraph 18. As the ground on which the appeal has succeeded was not taken at any earlier stage of the proceedings, we direct each party to bear his own costs in all the Courts.