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Ramvallabh Tribrewalla v. Dwarka Das And Co. .
Factual and Procedural Background
The appellant filed Suit No. 1712 of 1949 in the Bombay High Court to recover money allegedly due from the respondent. On 18 February 1954, while the suit was still pending, both parties executed an arbitration agreement referring all disputes in the suit to the sole arbitration of Sri Ramrikhdas Parasrampuria and providing for withdrawal of the suit. The suit was in fact withdrawn the same day.
Subsequently, Sri Parasrampuria was removed, two replacement arbitrators were likewise removed, and finally Shri S. V. Gupte was appointed. The Court extended Shri Gupte’s time to make an award up to 21 March 1958 but later refused further extensions. Shri Gupte did not make an award within the stipulated time.
On 3 April 1958 the appellant applied under Section 20 of the Indian Arbitration Act, 1940 for (a) filing of the arbitration agreement, (b) extension of Shri Gupte’s time, (c) an alternative reference to another arbitrator, and (d) exclusion of time for limitation purposes. Both the trial judge (K. K. Desai, J.) and the appellate bench rejected the request to file the agreement under Section 20, holding that the provision did not apply because a suit concerning the same subject-matter had already been instituted in 1949. Special leave to appeal was granted, and the matter came before the Supreme Court.
Legal Issues Presented
- Whether the words “before the institution of any suit with respect to the subject-matter of the agreement” in Section 20(1) of the Indian Arbitration Act, 1940 bar the filing of an arbitration agreement that was executed after a suit had been instituted but was subsequently withdrawn.
- Whether, on the proper interpretation of Section 20, an arbitration agreement entered into while no suit is actually pending (even though a suit had once been filed) can be filed in court.
Arguments of the Parties
Appellant's Arguments
- Section 20 permits filing where the arbitration agreement was entered into during the pendency of a suit provided the suit is not pending when the filing application is made.
- Alternatively, Section 20 applies if the agreement was entered into when no suit was pending, even if a suit had earlier been instituted.
- The agreement of 18 February 1954 was intended to operate only upon withdrawal of the suit and therefore qualifies as an agreement made while no suit was pending.
Respondent's Arguments
- The opening words of Section 20 categorically preclude filing because the arbitration agreement was executed after a suit on the same subject-matter had already been instituted.
- Additional objections (reserved for consideration in the lower court upon remand): (a) the appellant elected to proceed under Chapter II and cannot now resort to Chapter III; (b) the application is time-barred; (c) the arbitration was intended exclusively for Sri Parasrampuria, who is no longer available.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Kokil Singh v. Ramasray Prasad Choudhary, ILR 3 Pat 443 (1924) | Interpretation of para 17 of Schedule II, Code of Civil Procedure, 1908 (arbitration with court intervention) | Not followed; distinguished because Section 20 contains language and a statutory scheme absent from Schedule II. |
| Lal Chand v. Sri Ram, AIR 1930 Lah 1066 | Same as above | Not decisive for interpreting Section 20 of the 1940 Act. |
| Hira Ram v. Ram Ditta, AIR 1935 Lah 59 | Same as above | Considered but not treated as controlling authority. |
| Dinkarrai Lakshmiprasad v. Yeshvantrai Hariprasad, ILR 54 Bom 197 (1930) | Same as above | Likewise held inapplicable to the construction of Section 20. |
Court's Reasoning and Analysis
Justice Bachawat began by noting that the Arbitration Act, 1940 establishes three distinct regimes: (1) arbitration without court intervention (Chapter II), (2) arbitration with court intervention where no suit is pending (Chapter III), and (3) arbitration in pending suits (Chapter IV). He observed that an arbitration agreement made while a suit is pending can only be acted upon through Chapter IV; conversely, agreements made when no suit is pending may be enforced under Chapters II or III.
The heading of Chapter III (“Arbitration with intervention of a Court where there is no suit pending”) and the phrase “instead of proceeding under Chapter II” in Section 20 supported a reading that Section 20 concerns situations where no suit is currently pending, regardless of whether a suit was filed in the past.
The Court evaluated four possible interpretations of the words “before the institution of any suit” and concluded that the legislature intended them to mean “while no suit with respect to the subject-matter is pending.” Accordingly, the language qualifies the existence of the arbitration agreement itself, not the timing of the application to court.
Applying this construction, Justice Bachawat examined the February 1954 agreement. Although signed while the suit was technically pending, the agreement expressly contemplated immediate withdrawal of the suit as a condition precedent to its operation. Because the suit was in fact withdrawn on or about the same date, the Court held that the “effective” arbitration agreement came into existence when no suit was pending. Section 20 was therefore applicable, and the lower courts had erred in refusing to file the agreement on the ground relied upon.
Holding and Implications
APPEAL ALLOWED; LOWER COURT JUDGMENT SET ASIDE; MATTER REMANDED.
The Supreme Court set aside the Bombay High Court’s decision and remanded Appeal No. 58 of 1960 for consideration of outstanding objections (election of remedies, limitation, and the identity of the arbitrator). The respondent was ordered to pay the appellant’s costs in the Supreme Court.
By clarifying that Section 20 applies to arbitration agreements entered into when no suit is pending (even if a suit had once been filed and later withdrawn), the decision narrows the restrictive interpretation adopted by some lower courts and delineates the relationship between Chapters II, III, and IV of the Arbitration Act, 1940.
Bachawat, J.— This appeal raises a question of construction of Section 20 of the Indian Arbitration Act, 1940. The appellant instituted Suit No. 1712 of 1949 in the Bombay High Court against the respondent claiming a decree for money said to be due on account of various dealings between the parties. On or about February 18, 1954, the parties entered into an arbitration agreement for reference of the disputes to the arbitration of Sri Ramrikhdas Parasrampuria. The agreement also provided for withdrawal of the suit. In view of the agreement, the suit was duly withdrawn. Sri Parasrampuria was subsequently removed, and in his place, two other arbitrators were appointed. These arbitrators were also subsequently removed, and in their place, Shri S.V Gupte was appointed the arbitrator. The time for making the award was extended by orders of Court from time to time up to March 21, 1958. Two more applications for extension of time were rejected by the Court. Shri S.V Gupte was unable to make the award by March 25, 1958.
2. On April 3,1958, the appellant applied to the Court for (a) the filing of the arbitration agreement under Section 20 of the Indian Arbitration Act, 1940, (b) extension of the time of Shri Gupte to make the award, (c) in the alternative, reference of the disputes to some other person, and (d) an order for exclusion of the time from February 18, 1954 up to April 3, 1958 so as to save the bar of limitation, if any. The prayer for extension of the time of Shri Gupte to make the award was rejected by K.K Desai, J. and also by the appellate court, and that prayer is no longer pressed by the appellant. Both Courts also rejected the appellant's prayer for the filing of the arbitration agreement under Section 20. K.K Desai, J. held that in order to attract Section 20, the applicant must prove that the subject-matter of the arbitration agreement was not the subject-matter of any suit already instituted. The appellate Bench held that the arbitration agreement having been entered into five years after the institution of the suit, could not be said to be an arbitration agreement before the institution of any suit with respect to the subject-matter of the agreement as contemplated by Section 20(1). The appellant now appeals to this Court by special leave.
3. The respondent contends that the opening words of Section 20 preclude the filing of the arbitration agreement dated February 18, 1954, as the agreement was entered into after the institution of a suit with respect to the subject-matter of the agreement. The appellant contends that (1) Section 20 permits the filing of an arbitration agreement entered into during the pendency of such a suit, if the suit is not pending when the party applies for the filing, in the alternative, (2) Section 20 permits the filing of an arbitration agreement entered into while no such suit is pending, though such a suit might have been instituted previously and (3) the arbitration agreement dated February 18, 1954 was intended to be operative upon the withdrawal of the suit and was thus an agreement entered into while the suit was no longer pending and it could properly be filed under Section 20.
4. Sub-section (1) of Section 20 reads:
“Where any persons have entered into an arbitration agreement before the institution of any suit with respect to the subject-matter of the agreement or any part of it, and where a difference has arisen to which the agreement applies, they or any of them, instead of proceeding under Chapter II, may apply to a Court having jurisdiction in the matter to which the agreement relates, that the agreement be filed in Court.”
5. The dispute turns on the proper meaning to be given to the words “before the institution of any suit with respect to the subject-matter of the agreement or any part of it”. Four alternative interpretations of these words are suggested: (1) The word “before” suggests precedence in point of time; the section contemplates an arbitration agreement followed by a suit with respect to its subject-matter, and if there is no such suit, the section is not attracted; (2) The words “before the institution of any suit” mean “where no suit has been instituted”; the section precludes the filing of an arbitration agreement entered into after the institution of the suit, even though the suit may have been withdrawn before the making of the agreement; (3) The words “before the institution of any suit” mean “while no suit is pending”; the section permits the filing of an arbitration agreement entered into while no suit is pending, though previously such a suit was instituted; and (4) the words “before the institution of any suit” etc. qualify the words “may apply”; the section permits the filing of all arbitration agreements provided the application for filing is made while no suit is pending.
6. The object of the opening words is to restrict the operation of Section 20 to a limited class of arbitration agreements. It is obvious that the opening words admit of more than one meaning. For the purpose of resolving the ambiguity, it is legitimate to refer to the other parts of the section, the heading of Chapter III and the general scheme of the Act.
7. The Arbitration Act, 1940 contemplates three classes of arbitrations: (1) arbitration without intervention of a Court under Chapter II; (2) arbitration with intervention of a Court where there is no suit pending, under Chapter III, and (3) arbitration in suits under Chapter IV. An arbitration agreement between the parties to a pending suit for reference of any dispute in the suit entered into while the suit is pending, may be enforced under Chapter IV only by obtaining an order of reference from the Court in which the suit is pending and not by proceeding under Chapters II and III. But an arbitration agreement entered into while no suit with respect to its subject-matter is pending cannot be enforced under Chapter IV, and there is nothing in Chapter IV or the general scheme of the Act, which precludes the enforcement of such an agreement under Chapters II and III. The effect of a subsequent suit with respect to the subject-matter of the agreement is considered and dealt with in Sections 34 and 35 of Chapter V.
8. The heading of Chapter Ill shows that the subject-matter of Section 20 is “arbitration with intervention of a Court where there is no suit pending”. The heading is wide enough to include arbitration under an arbitration agreement entered into while no suit with respect to the subject-matter is pending.
9. The words “instead of proceeding under Chapter II” in Section 20 suggest that the parties may proceed under Chapter III where they could proceed under Chapter II. Reading Chapter II with Section 2(a), it is plain that an arbitration agreement entered into while no suit with respect to its subject-matter is pending may be enforced under Chapter II. Since such an agreement is enforceable under Chapter II, prima facie it is also enforceable under Chapter III.
10. The opening words of Section 20 contemplate that a suit with respect to the subject-matter of the arbitration agreement may or may not be filed. In order to attract Section 20, it is not, therefore, necessary that the arbitration agreement should be followed by a suit with respect to its subject-matter. The word “before” is not used in the strict grammatical sense of priority in order of time. In the light of the other parts of Section 20, its heading and the general scheme of the Act, we think that the legislature used the words “before the institution of any suit” in the sense of “while no suit is pending” and not in the sense of “where no suit has been instituted”. The former meaning, is more in harmony with the real intention of the legislature. If the agreement is entered into while no suit with respect to its subject-matter is pending, the fact that its subject-matter was the subject-matter of a previously instituted suit would not preclude its enforcement under Chapters II and III. We think, therefore, that the words “before the institution of any suit with respect to the subject-matter of the agreement or any part of it” mean “while no suit with respect to the subject-matter of the agreement or any part of it is pending”. These words qualify the preceding words “an arbitration agreement” and not the succeeding words “may apply”. In other words, Section 20 is attracted to an arbitration agreement entered into while no suit with respect to its subject-matter is pending. If it is entered into while such a suit is pending, it cannot be enforced by an application under Section 20, though the application is made when the suit is no longer pending.
11. Learned counsel for the parties cited before us the following cases decided under para 17 of Schedule II of the Code of 1908 viz. Kokil Singh v. Ramasray Prasad Choudhary (1924) ILR 3 Patna 443, Lal Chand v. Sri Ram AIR 1930 Lah 1066, Hira Ram v. Ram Ditta AIR 1935 Lah 59 and Dinkarrai Lakshmiprasad v. Yeshwantrai Hariprasad (1930) ILR 54 Bom 197. It is to be noticed that the heading of Chapter III “Arbitration with intervention of a Court where there is no suit pending” and the words in Section 20 “before the institution of any suit with respect to the subject-matter of the agreement or any part of it” and “instead of proceeding under Chapter II” do not find any counterpart in the corresponding provision of Schedule II of the Code of Civil Procedure, 1908. In the circumstances, we think that the cases decided under para 17 of Schedule II of the Code of 1908 are not decisive on the question of construction of Section 20 of the present Act, and that section must be construed in the light of its own language and the scheme of the present Act.
12. Now, the question is whether the agreement dated February 18, 1954 is an agreement, to which Section 20 is attracted. The relevant operative portion of the agreement reads:
“All matters in disputes in Suit No. 1712 of 1949 “(Ramvallabh Tibrewalla v. Dwarkadas & Co.) in Bombay High Court including the question of whether the accounts were made up and adjusted and/or settled between the parties as pleaded in the written statement of the Defendants and the costs of the suit be referred to the sole arbitration of Ramrikhdas Parasrampuria...The intention of the parties is that the said matters in dispute between them be decided by arbitration and it is agreed that the said suit will therefore be withdrawn.”
The agreement was signed on February 18, 1954, while the suit was pending. Before us, it is admitted by counsel for both parties that the suit was withdrawn on or about the same date. The parties obviously intended that the pending suit would be withdrawn immediately so that the disputes might be resolved by arbitration without recourse to litigation. On a proper interpretation of the agreement, the withdrawal of the suit was the essential condition, upon the fulfilment of which the agreement would become operative. Thus, the effective arbitration agreement came into existence when the suit was withdrawn and may properly be said to have been entered into while no suit with respect to its subject-matter was pending. The agreement can, therefore, be filed under Section 20.
13. The ground upon which the Courts below dismissed the application, for filing the arbitration agreement under Section 20 cannot, therefore, be upheld. A technical objection as to the frame of the application based on Rule 391 of the High Court Rules is no longer pressed. But the respondent also contends that (1) the appellant elected to proceed with the arbitration under Chapter II, and having so elected, he cannot now claim arbitration under Chapter III; (2) the application is barred by limitation, and the prayer for exclusion of time under Section 37 ought not to be allowed; and (3) the parties intended that the arbitration would be by Ramrikhdas Parasrampuria only, and as he is not willing to act and/or has been removed, there can be no further arbitration. The Courts below have not considered these contentions of the respondent. Having heard learned counsel on both sides, we think that the respondent is entitled to ask for the final disposal of the application after consideration of these points by the lower appellate court, and for that purpose, this case should be remanded.
14. In the result, the appeal is allowed, the judgment and decree dated. February 21, 1964 of the Bombay High Court in Appeal 58 of 1960 are set aside and the aforesaid Appeal 58 of 1960 is remanded to the Court below for disposal in accordance with law. The respondent shall pay to the appellant the costs of this appeal.
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