A third person who is not a party to an arbitration agreement or to the contract containing an arbitration clause and not claiming under such parties, is not bound by such agreement.

Headnote:
ARBITRATION - ARBITRATION AGREEMENT - ASSIGNMENT OF RIGHTS - JURISDICTION OF ARBITRATOR - ENFORCEMENT OF AWARD - ARBITRATION ACT, 1940 - SECTIONS 20, 30, 33, 34.
Fact of the Case:

A dispute arose between M/s Rawalpindi Theatres (P) Ltd. and Shri Om Prakash Mehra regarding the payment of Rs. 9,500. The parties entered into an arbitration agreement appointing Shri R. L. Duggal as the sole arbitrator. Shri W. N. Chowdhary, a Special Attorney of M/s Rawalpindi Theatres (P) Ltd., filed an application under section 20 of the Arbitration Act, 1940, seeking to refer the dispute to arbitration. The Commercial Subordinate Judge ordered the arbitration agreement to be filed and the matter to be referred to the sole arbitration of Shri R. L. Duggal. On appeal, the Additional District Judge reversed the order and dismissed the application. On revision, the Punjab High Court set aside the order of the Additional District Judge and restored that of the Court of first instance. The arbitrator filed an application under section 28 of the Arbitration Act for extending time for making and signing the award. The Commercial Subordinate Judge granted the extension. The arbitrator made and published his award, which was challenged by the parties under sections 30 and 33 of the Arbitration Act. The Commercial Subordinate Judge set aside the award on the ground that the arbitrator was guilty of misconduct and that Shri W. N. Chowdhary was not a party to the arbitration agreement or to the arbitration proceedings and was, therefore, not entitled to enforce the award.
Finding of the Court:

The Court held that the direction of the Court below that Shri W. N. Chowdhary be made a party to the arbitration proceedings was without jurisdiction and suffered from a serious illegality and a material irregularity in the exercise of the jurisdiction vested in the Court below by law. The Court further held that the arbitrator had jurisdiction to adjudicate upon the rights of the parties to the arbitration agreement and to decide whether or not the amount of Rs. 9,500.00 had been paid to Shri W. N. Chowdhary as agreed to by Shri Om Prakash Mehra.
Issues: 1. Whether Shri W. N. Chowdhary was a party to the arbitration agreement and, therefore, entitled to enforce the award? 2. Whether the arbitrator had jurisdiction to award the sum of Rs. 9,500.00 to Shri W. N. Chowdhary? 3. Whether the Court below had jurisdiction to direct the arbitrator to make Shri W. N. Chowdhary a party to the arbitration proceedings?
Ratio Decidendi: 1. A third person who is not a party to an arbitration agreement or to the contract containing an arbitration clause and not claiming under such parties, is not bound by such agreement. 2. The arbitrator has jurisdiction to adjudicate upon the rights of the parties to the arbitration agreement and to decide whether or not the amount of Rs. 9,500.00 had been paid to Shri W. N. Chowdhary as agreed to by Shri Om Prakash Mehra. 3. The Court below had no jurisdiction to direct the arbitrator to make Shri W. N. Chowdhary a party to the arbitration proceedings.
Final Decision: The Court allowed the revision petition and deleted the direction from the lower Court's order that the arbitrator should implead Shri W. N. Chowdhary as a party to the arbitration proceedings.

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 :-

"i write 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, and U. P. Circuits, I am enclosing herewith a letter of Authority issued by the above party in my favour.

"i further 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,

"i further 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 not 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 not assured you as above, you would not 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.

FOR Shanti Niketan Films : Bombay

SD/- Om Prakash Mehra,

RECEIVED the above mention-

ED letter dated 21-7-62 in

FAVOUR M. P. A. Delhi by me

FOR its 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 not being a party to the arbitration agreement, the arbitrator cannot make an orderfor payment of Rs. 9,500. 00 in favour 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, therefore, entitled to claim payment of the amount in question by means of arbitra

Click Here to Read the rest of this document

1969 Supreme(Del) 65

High Court Of DelhiPATANJAL - AppellantVersusRAWALPINDI THEATRESPRIVATE LIMITED - RespondentDecided On : 04/09/1969

A third person who is not a party to an arbitration agreement or to the contract containing an arbitration clause and not claiming under such parties, is not bound by such agreement.

High Court Of Delhi
PATANJAL - Appellant
Versus
RAWALPINDI THEATRESPRIVATE LIMITED - Respondent
Decided On : 04/09/1969