Decided on July 31,1968



BHANDARI, J. - (1.)THIS miscellaneous appeal has been filed by Gulam Abbas appellant against the judgment and decree dated 31st October, 1966, of the Senior Civil Judge, Ajmer, by which he made the award dated 19th April, 1964, filed by the arbitrator Shri Chiranjilal Garg a rule of the Court and passed a decree for Rs. 19933-50 in terms of the award in favour of Madhav Finance Company against Gulam Abbas. The judgment also provided for award of interest and costs and for payment of arbitrator's fees.
(2.)ON 3rd October, 1962, Madhav Finance Company presented an application to the said arbitrator that a hire purchase agreement was executed on 8th Oct. , 1959 by Zakir Hussain and Gulam Abbas, partners of M/s. Fakhri Motor Service and under that agreement the Company was entitled to receive Rs. 19934/-upto 3rd October, 1962, and interest thereafter and that under cl. 15 (b) of the said agreement, Shri Chiranjilal Garg was appointed an arbitrator to decide any dispute between the parties with regard to the matters contained in the said hire-purchase agreement and, therefore, the said arbitrator was to adjudicate upon the claim of the petitioner against Zakir Hussain Gulam Abbas with regard to the hire purchase agreement. The arbitrator gave notice to both Zakir Hussain and Gulam Abbas. Gulam Abbas took several objections before the arbitrator in which he stated that not a penny was due to the Company from him and that he was not a party to the hire-purchase agreement dated 8th October, 1959, or to any agreement whatsoever. He further stated that if Zakir Hussain had entered into any agreement with the Company, he was not in any way liable for that. The other contentions raised in the reply need not be mentioned. Zakir Hussain did not at all appear before the arbitrator.
The arbitrator conducted arbitration proceedings on various dates in which Gulam Abbas participated. On 19th April, 1964. he gave the award referred to above. The hire-purchase agreement that had been filed before him purported to be executed by Zakir Hussain Gulam Abbas partners of M/s Fakhri Motor Service through Zakir Hussain of Udaipur, Rajasthan. It was signed by Zakir Hussain partner but was not signed by Gulam Abbas. Before the arbitrator, it was contended that Gulam Abbas, being not a party to the agreement was not bound by it. But this contention was over-ruled by the arbitrator on the ground that Gulam Abbas admittedly was a partner of M/s. Fakhri Motor Service and the agreement was executed by the other partner Zakir Hussain on behalf of the firm in the course of the management of the firm and for the benefit of the firm and that the said firm existed upto 28th December, 1962. Thereafter, as already mentioned, the arbitrator filed the award in the court of the Senior Civil Judge, Ajmer, on 15th May, 1964.

Notices were issued to the parties by the court for showing cause why the award be not made a rule of the court. Gulam Abbas raised several pleas in reply to the notice. The main contention raised on his behalf was that the entire award was void as it was against the person who was not a party to the arbitration agreement and that he had taken this objection before the arbitrator proceeded with the case and gave an award against a person who had made no submission to him. The award was, therefore, without jurisdiction. The other objections need not be mentioned. The learned Senior Civil Judge rejected the objections and made the award a rule of the court by his judgment dated 31st October, 1966. Gulam Abbas has filed this appeal in this Court.

Learned counsel for the appellant has contended that the appellant had challenged the arbitration agreement and the arbitrator could not have proceeded with the arbitration proceedings as his jurisdiction to hold such proceedings so far as the appellant is concerned was being challenged. It is next contended that Zakir Hussain had no authority to incorporate the arbitration clause 15 (b) in the hire-purchase agreement. This clause runs as follows - " (b) All disputes, differences or claims arising out of and in connection with this agreement, shall be referred to the sole arbitration of Shri Chiranjilal Garg Pleader of Ajmer or his nominee at Ajmer under the provisions of the Indian Arbitration Act of 1940 or any statutory modifications thereof. The award of the arbitrator shall be final and binding on all the parties concerned. The arbitrator shall be bound to give his award within the provisions of this agreement. His terms of reference will be strictly governed by the terms of this agreement and the Arbitrator shall not question the validity of the same. The notices sent by the arbitrator to the parties by registered post at the addresses mentioned in the agreement will be considered as sufficient service on the parties, whether such notices are received by them or not or are refused. ' In reply to these contentions, learned counsel for Madhav Finance Company has urged that the arbitrator had jurisdiction to decide whether he had the authority to arbitrate and if in the circumstances of the case be had come to the conclusion that the hire-purchase agreement executed by Zakir Hussain on behalf of Fakhri Motor Service was binding on Gulam Abbas, it was not open to Gulam Abbas to agitate this point in this Court. It is also contended that Gulam Abbas had ratified the action of Zakir Hussain in executing the hire-purchase agreement, and it is not open to him to challenge the various clauses of that agreement.

There is no doubt that on receiving notice of the arbitrator, Gulam Abbas took up the plea that the arbitrator had no right to arbitrate so far as he was concerned as he had not made a valid submission. Now sec. 33 of the Arbitration Act lays down that any party to an arbitration agreement desiring to challenge the existence or validity of an arbitration agreement shall apply to the Court and the Court shall decide the question on affidavits.

In this case the existence or validity of the arbitration agreement was challenged by Gulam Abbas and the effect of sec. 33 is that this matter is to be determined by the court before the award could have been filed and not by the arbitrator. This is the view of the law taken in England by the House of Lords in Heyman vs. Darwins Ltd. (l) There the question was whether a repudiation of a contract by a party thereto had the effect of annulling the arbitration clause contained therein, In deciding this point, Viscount Simon L. C. observed as follows : "if the dispute is whether the, contract which contains the clause has ever been entered into at all, that issue cannot go to arbitration under the clause, for the party who denies that he has ever entered into the contract is thereby denying that he has ever joined in the submission. " In East India Trading Co. New York vs. Badat and Co. (2) it was observed as follows : "now the principle of the matter is this that when a party denies the arbitration agreement, the very basis on which the arbitrator can act is challenged and therefore the Courts have taken the view that in such a case the arbitrator has no jurisdiction to decide whether he himself has jurisdiction to adjudicate upon the dispute. " These observations were approved by their Lordships of the Supreme Court in Waverly Jute Mills vs. Raymon & Co. (3 ). It was observed that in the judgment of their Lordships of the Supreme Court, these observations were a correct statement of the true legal position.

We may also point out that Heyman vs. Darwins Ltd. (supra) was referred to at length by their Lordships of the Supreme Court in Khardah Co. Ltd. vs. Raymon Co. (4) and it has been held that sec. 33 of the Arbitration Act which enacted that a party to an arbitration agreement who desires to challenge the existence or validity of an arbitration agreement should apply to the court for determination of the question and this section represented the law on the subject as understood in England at the time of that legislation and as declared later by the House of Lords in Heyman vs. Darwins Ltd. (supra ).

In view of these authoritative pronouncements of the Supreme Court, the position in law is that an arbitrator cannot decide the question whether there is in existence any arbitration agreement binding on a party and it must be left to be decided by the Court under sec. 33 of the Indian Arbitration Act.

(3.)IN the instant case the arbitrator himself proceeded to decide this matter which was illegal.
Learned counsel for the Company has argued that Gulam Abbas participated in the arbitration proceedings and he must now be held to have acquiesced to the arbitration by Mr. Garg. This argument is without force because Gulam Abbas had specifically raised an objection that there was no valid submission on his behalf to the arbitration. Moreover, the defect in the arbitration proceedings is not cured by the participation of Gulam Abbas at subsequent stages. In this connection, we may refer to the following observations in Waverly Jute Mills vs. Raymon & Go. (supra ). "now an agreement for arbitration is the very foundation on which the jurisdiction of the arbitrators to act rests,, and where that is not in existence at the time when they enter on their duties, the proceedings must be held to be wholly without jurisdiction. And this defect is not cured by the appearance of the parties in those proceedings, even if that is without protest, because it is well settled that consent cannot confer jurisdiction. "

Learned counsel for the Company has argued that now that an award has been made and that award has been made a rule of the court, it is not proper to disturb the award and the rule of the Court even if the Court comes to the conclusion that Gulam Abbas must not be deemed to have made a submission through Zakir Hussain by reason of clause 15 (b) of the hire-purchase agreement. He has further requested that the objection application filed on behalf of Gulam Abbas in the Court of the Senior Civil Judge on 27th October, 1966, and the reply filed by the Company to the objection on 30th October, 1966 be treated as raising a question relating to the existence or validity of the arbitration agreement and the Senior Civil Judge (now Additional District Judge) be directed to decide this matter. In the circumstances of the case, we accede to this request.

We may at this stage point out that the learned Judge below framed issue No. 1 relating to this matter which runs as follows : "was no reference of the matter in dispute made to the Arbitrator Shri Chiranjilal who has made this award and so the award is invalid ?" The learned Judge decided this matter by observing that the letter of reference was submitted to the arbitrator on behalf of the plaintiff on 3rd October, 1962, and, therefore, it could not be said that no reference was ever made to the arbitrator. Then the learned Judge proceeded to observe that it was argued by the Advocate on behalf of Gulam Abbas that he was not a party to the hire-purchase agreement and the reference made by the plaintiff against him was not validly made because he had never appointed Shri Chiranjilal Garg Advocate as arbitrator. The learned Judge said that it was not supported to observe that it could not be denied that one partner of the firm could sign an agreement and that agreement would be binding on all the partners of the firm. This argument over-looks one important point. It is only an act of a partner which is done to carry on in the usual way the business of the kind carried on by the firm which binds the firm. In this connection reference may be made to Sec. 19 of the Indian Partnership Act the material portion of which runs as follows ; "19. (1) Subject to the provisions of sec. 22, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm. The authority of a partner to bind the firm conferred by this section is called his 'implied authority. " (2) In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to - (a) submit a dispute relating to the business of the firm to arbitration. . . . . . Sec. 19 (2) makes it clear that implied authority of a partner does not empower him to submit a dispute relating to the business of the firm to the arbitration. The learned Senior Civil Judge had in his mind sec. 19 (1) but he appears to have overlooked sec. 13 (2) (a ). Otherwise it was necessary for him to have seen whether there was any express authority conferred by that deed on Zakir Hussain for submitting a dispute relating to the business of the firm to the arbitration. Learned counsel for the Company has argued that this matter has not been fully gone into by the trial court and it may now be left to be examined by it. We find that this contention is correct to a great extent. The learned trial Judge took the view that the letter of submission on the part of the Company was a sufficient submission to the arbitration. This is not the position in law. There must be a submission on behalf of all the parties to arbitration and in this case it must be shown that there was a submission by Gulam Abbas or on his behalf by some other person authorised to make this submission. We leave this matter to be examined by the trial court.


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