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,

Pahargan. (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 : Bombaysd/- Om Prakash

Mehra,received the above mention-ED letter dated 21-7-62 infavour 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, Pahargan. According to the petitioners counsel, Shri W. N.

Chowdhary not being a party to the arbitration agreement, the arbitrator cannot

make an order for 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

arbitration proceedings. In November, 1963, an application under section 20 of the

Indian Arbitration Act was presented by M/s Rawalpindi Theatres (P) Ltd. , in the

Court of the Senior Subordinate Judge, Delhi, impleading therein Shri Patanjal and

Shri Om Prakash Mehra, as respondents. It was averred in that application that Shr.

N. Chowdhary was the Managing Director of the applicant-company and was

authorised to appoint Attorneys on behalf of the said company. By a special power

of Attorney dated 20-3-1963, the said Shr. N. Chowdhary had appointed Shri W. N.

Chowdhary as a Special Attorney to take steps for recovery of the amount due to

the applicant-company from respondent No. 1. Needless to point out that Shri

Patanjal was respondent No. 1 in those proceedings, The power of attorney granted

by Shr. N. Chowdhary authorised Shri W. N. Chowdhary to take such legal steps for

enforcement of the claim of M/s Rawalpindi Theatres (P) Ltd. as may be considered

right and proper. That application was, according to the express averments

contained therein, signed and verified by Shri W. N. Chowdhary who was stated to

be fully conversant with the facts of the case and able to depose to matters relating

to the dispute from his personal knowledge. In paragraph 22 of the application,

assurance No. 1 in the agreement dated 21-7-1962 was repeated and in paragraph

25, it was complained that the respondents mentioned in the application had failed

to perform their part of the agreement and had not paid the amount due to the

applicants M/s Rawalpindi Theatres (P) Ltd. under the agreement dated 21-7-1962.

It was prayed that the agreement dated 21-7-1962 be ordered to be filed in the

Court and steps for an award being made by the arbitrator, as provided by section

20 of the Indian Arbitration Act, be taken. This application was signed by Shri W. N.

Chowdhary for applicants Rawalpindi Theatres (Private) Ltd. as their attorney. The

following four issues were framed on the merits :-"1. Whether the plaintiff-company

is registered under the Indian Companies Act 2. Whether the petition has been

filed, signed and verified by a duly authorised person on behalf of the plantiff -

company 3. Whether there is a valid arbitration agreement existing between the

parties appointing Shri R. L. Duggal, as the sole arbitrator 4. If issue No. 2 is

proved, whether the dispute be not REFERRED TO to the arbitration as alleged. "

(5) THE learned Commercial Subordinate Judge (Shri A. K. Jain) on 11-6-1964

ordered that the arbitration agreement Ex. P-5 be filed and the matter in dispute be

REFERRED TO to the sole arbitration of Shri R. L. Duggal. In the order, it was

observed, inter alia, that the application had been signed and verified by Shri W. N.

Chowdhary, a person duly authorised on behalf of the company which was duly

registered under the Indian Companies Act and it was added, to quote the exact

words, "there is a valid arbitration agreement existing between the plaintiff and the

respondent, appointing Shri R. D. Duggal, as the sole arbitrator. "

(6) ON appeal, the learned Additional District Judge (Shr. S. Mandher) by order

dated 31-3-1965 reversed the order of the learned Commercial Subordinate Judge

and dismissed the application referring the matter to arbitration on the ground that

there were serious allegations of fraud against the appellant and admittedly even a

criminal complaint had been filed in the Court of a Magistrate of 1st Class.

(7) ON revision in the Punjab High Court (C. R. No. 417-D of 1965), H. R. Khanna,.

by his order dated 17-8-1966 set aside the order of the learned Additional District

Judge and restored that of the Court of first instance. In the course of the hearing of

the revision, the attention of the learned Judge was drawn to the statement of Shri

W. N. Chowdhary, the Director and Special Attorney of the petitioner-company, in

which he had stated in cross-examination that the complaint filed by the company

against the opposite party had been dismissed in default and that in the complaint it

had been alleged that the opposite party had played a fraud and cheated the

petitioner-company regarding the amount due on the agreement. After noticing the

ratio of the Supreme Court decision (Abdul Kadir Shamsuddin Bubere v. Madhav

Prabhakar Oak etc. (1)) cited both in the appeal before the learned Additional

District Judge and on revision in the High Court, and other decisions cited before H.

R. Khanna,. the learned Judge observed as follows :-"it is stated that the dispute

between the parties now is that the respondents had undertaken to pay Rs. 9,500.

00 in accordance with the agreement reproduced above and as the respondents

have not paid that amount there is a dispute which needs adjudication. The dispute

now between the parties, according to the learned counsel, is only with respect to

the payment of Rs. 9,500. 00. Reference in this connection has been made to the

statement of W. N. Chowdhary, Director and Special Attorney of the petitioner, who

has come into the witness-box as Public Witness 3 and who has deposed that the

dispute between the parties was that the respondent were not paying the money to

the witness. It would appear from the above that the dispute, which needs

adjudication and which is sought to be REFERRED TO to the arbitrator, is only about

the claim of Rs. 9,500. 00 which, according to the petitioner, the respondents were

bound to pay in terms of the agreement REFERRED TO to above. Such a dispute can

validly be REFERRED TO to arbitrator and the court below, in my opinion, was not

justified in reversing the decision of the trial Court in this respect. "

(8) AFTER this decision, the arbitrator apparently entered on the reference and in

March, 1967, he filed an application under section 28 of the Arbitration Act in the

Court of the learned Commercial Subordinate Judge, Shri D. C. Aggarwal, for

extending time for making and signing the award by about two months. Incidentally,

it may be pointed out that earlier in November, 1964, M/s Rawalpindi Theatres (P)

Ltd. , had filed an application under section 28 of the Indian Arbitration Act in the

Court of the Commercial Subordinate Judge (Shri A. K. Jain) for extension of time

for making the award and for condoning the delay. In that application, it was

averred as follows :-"the petitioner-company is only late by five days in filing this

petition if it is held that this application should have been filed before the expiry of

four months time. The applicant was prevented by the delay in the decision of the

appeal by Honble Additional District Judge. The delay may, therefore, be condoned

and this Honble court may be pleased to order that the award be made by the

arbitrator by the 15th of February, 1965. "

(9) THIS application was dismissed on 27-4-1965 by the learned Commercial

Subordinate Judge on the ground that the application filed under section 20 of the

Arbitration Act had been dismissed by the learned Additional District Judge on

appeal. On the application by the arbitrator, an ex parte order was made by the

learned Commercial Subordinate Judge on 7-3-1967 which reads as under:-"this is

an application under Section 28 of the Arbitration Act filed by Shri R. L. Duggal, sole

arbitrator. It is alleged that after learning from the petitioner-company that the

appeal to the High Court in petition No. 417-D/65 had been dismissed, he issued

notices to the parties on 19-9-66, and 8-10-66, and that the petitioner appeared in

pursuance of the notice but the respondents had not been served. Thereafter, the

claimant petitioner obtained an order for substituted service and it is said that a

notice was published in the Times of India calling upon the respondents to appear

before the arbitrator on 14-2-67. The arbitrator says that the respondents put in

appearance on 14-2-67 through Shri Sham Sunder Gautam, Advocate. In these

circumstances, there is good reason for extension of the time. So, time is extended

for making the award till 7-5-67. "

(10) IN April, 1967, an application was presented in the Court of the Commercial

Subordinate Judge by Shri R. L. Duggal, Arbitrator under sections 14 and 17 of the

Arbitration Act stating that he had signed and published his award dated March 29,

1967 and that he was therewith filing the award and the arbitra- tion proceedings in

Court. It was prayed that notices be issued to the parties of the filing of the award

and the matter be proceeded with according to law. Objections under sections 30

and 33 of the Arbitration Act were raised to the award and the pleadings of the

parties gave rise to four issues on the merits including, whether the arbitrator had

no jurisdiction to determine the claim of Shri Chowdhary, whether the arbitrator was

guilty of misconducting himself or the proceedings, and whether M/s Rawalpindi

Theatres (P) Ltd. were entitled to a decree in terms of the award. The learned

Commercial Subordinate Judge upheld the jurisdiction of the arbitrator to award the

sum of Rs. 9,500. 00 to Shri W. N. Chowdhary because of the agreement of

reference as also because of the statement of claim. It was, however, held that the

proceedings taken by the arbitrator against the respondents ex parte were vitiated

on account of failure on the part of the arbitrator to give notice to the respondents

about the extension of time granted by the Court and about his intention to proceed

on a particular date and also his failure to give further notice to the respondents of

his intention to proceed ex parte if they failed to appear on that date. On this view,

the award was set aside. The learned Commercial Subordinate Judge also held that

the decree could not be passed in favour of Shri W. N. Chowdhary who was neither

a party to the reference nor to the arbitration proceedings and was, therefore,

disentitled to enforce the award. M/s Rawalpindi Theatres (P) Ltd. were, however,

held entitled to have a decree passed in terms of the award, though such a decree

would, according to the Court, be infructuous being in favour of Shri W. N.

Chowdhary and not of M/s Rawalpindi Theatres (P) Ltd. The case was remitted back

to the arbitrator for proceeding with the arbitration after giving proper notice to the

respondents from the date when the respondents had last appeared before him. The

arbitrator was also directed to make Sh. W. N. Chowdhary a party to the arbitration

proceedings to ensure a proper representation of all the interested parties before

him because Shri Chowdhary was virtually the only. affected party under the

agreement of reference which had been upheld up to the High Court. It is this order

which is now assailed before us, but the challenge is confined to the direction to

implead Shri Chowdhary. Neither party has questioned the correctness of the order

setting aside the award and remitting it back to the arbitrator.

(11) SHRI M. L. Bagai, the learned Advocate for Shri Patanjal and Shri Om Prakash

Mehra has very strongly argued that the Court below has acted without jurisdiction

and, in any event, with material illegality and irregularity in the exercise of its

jurisdiction in directing the arbitrator to make Shri W. N. Chowdhary a party to the

arbitration proceedings. Having held that Shri W. N. Chowdhary was neither a party

to the reference nor to the arbitration proceedings, and, therefore, not entitled to

enforce the award, it was beyond the competence of the Court below to direct the

arbitrator to implead Shri Chowdhary to the arbitration proceedings before him. The

submission seems to me to be A well-founded.

(12) THE Arbitration Act of 1940 being a consolidating and amending Act on the

law relating to arbitration, we have to look to the provisions of the Act for discerning

the legal position. "arbitration agreement" in this Act means a written agreement to

submit present or future difference to arbitration, whether an arbitrator is named

therein or not and "reference" as defined there in, means a reference to arbitration.

Capacity to make-an arbitration agreement seems to me to be co-extensive with the

capacity to contract under the law. In order to constitute a valid arbitration

agreement, among other things, there should be a valid agreement, the terms of

which are reduced to writing and the parties thereto should be ad idem in other

words, the agreement of the parties should be established so that they can be held

to be bound by. it, though the written instrument or instruments, if there are more

than one containing the terms of agreement, need not necessarily be signed by the

parties bound by it. It is lawful to establish oral acceptance of the terms by the

parties to the agreement, though the terms agreed must be reduced to writing. The

subject-matter of the reference and the authority of the arbitrator in the reference

arising out of an agreement between the parties has, therefore, to be traced to the

agreement of reference only. From the legal position just stated, it follows that third

persons who are not parties to the arbitration agreement or to the contract

containing an arbitration clause and not claiming under such parties, are not bound

by such agreement. And not being bound, they would, as a general rule, be

disentitled to enforce the agreement. The language of section 20 of the Arbitration

Act seems also to support this view. This section empowers the parties to an

arbitration agreement, when differences have arisen, which are covered by it, to

apply to a Court having jurisdiction praying that the agreement be filed in Court.

Indeed, it is also the general fundamental rule that only a person who is a party to a

contract can sue on it. The existence of statutory or equitable exceptions to this rule

do not impinge upon its general fundamental character. Of course, if the subjectmatter

of the arbitration agreement is capable of assignment, then the assignee

would step into the shoes of his assignor and be both bound by it and entitled to

enforce it, but for this purpose, one has to look to the law relating to assignment of

contractual rights and obligations and also to see whether in a given case, the

assignee has exercised his right as such.

(13) HAVING stated the legal position as I understand it, I may turn to the

decisions cited at the Bar. Shri Bagai has, in support of his submission, placed

reliance on a Single Bench decision of the Punjab High Court sitting on Circuit at

Delhi in Gian Chandra Hirday Mohan V. Prem Narain A4ahinder Mohan. (2) the

head note of which, so far as relevant, reads thus :-"c made a gift of a house

exclusively belonging to him in favour of his nephew G. Later C filled a suit for

cancellation of the gift. The parties agreed to refer the dispute to arbitration. The

arbitrator instead of confining himself to the matter in dispute proceeded to decide

as to how the property was to devolve after Cs death. The plaintiffs who were

neither party to the suit nor the reference, were given a share in the property under

the award. A decree on the basis of the award was passed. On Cs death the

plaintiffs, basing their claim on the award and the decree passed thereon, brought a

suit for a share in the rents and profits of the house which was in exclusive

possession of G. HELD (i) that the plaintiffs had no locus standi to file the suit. As

they were not parties to the earlier suit or to the reference, they were not bound by

the award or the decree and, therefore, they could not claim any right under the

award or the decree ; ILR 6 All 322 (PC) and AIR 1955 Nag 126, Rel. on. "

(14) THE Nagpur decision in Chouthmal v. Ramchandra has also been cited by Shri

Baga. It has been observed in this decision that arbitrators have no power to go

outside the reference and create trust or give directions regarding thereto and even

if they do so, the Court should exclude that portion of the award from the decree.

Shri Sahney has placed his reliance on the language of section 34 of the Arbitration

Act and on an English decision reported as Shayler v. Woolf, In the English decision

cited, the Court of Appeal, affirming the Court below held that the covenant before

it had been expressly assigned and that the arbitration clause, not being a personal

covenant, was also assignable. As Shri Sawhney has placed principal, if not exclusive

reliance on this decision, we consider it appropriate to reproduce the relevant part of

the judgment given by Lord Greene, N. R. , with whom Morton and Somevell, L..

agreed. Thus said the Master of the Rolls-"that only leaves one point and that is the

arbitration clause. It is said that the contract cannot be assignable because of the

existance of the arbitration clause, inasmuch as such a clause is in its nature not

assignable or is only assignable (it is said) where the assigns are expressly

mentioned in the clause itself or the contract which contains the arbitration clause is

itself expressly declared to be assignable. In my opinion, these propositions are

incapable of support in the wide way in which they are stated; nor does any of the

authorities quoted to us in support of them really touch the point. THE question

whether an arbitration clause prevents a contract from being assignable must

depend on the intention of the parties, and the nature of the contract will, of course,

be very important. Quite apart from an arbitration clause, if the nature of the

contract is one which makes it incapable of assignment, owing to its personal

nature, there is no question, of course, of the assign ability of the arbitration clause;

but that an arbitration clause is assignable in its nature seems to me to be quite

clearly contemplated by the Arbitration Act, 1889, S. 4, and it has been recognized

in this Court in one of the authorities REFERRED TO to, namely, Aspell v. Seymour

(5 ). AS I have said, apart from this arbitration clause, the agreement in this case is,

in my opinion, quite clearly assignable. That is because, on its true construction, it is

an assignable contract, that being the intention of the parties gathered from the

document when read in the light of its subject-matter and the surrounding

circumstances. It seems to me that the result of that must necessarily be that the

arbitration clause also follows the assignment of the subject matter of the contract.

There is nothing, I conceive, in principle or authority which would prevent that from

taking place. THE consequence is that, in my opinion, this was a contract assignable

by Mrs. Peacock and, as it was assigned by her in her conveyance to the present

plaintiff, the benefit of the contract is now vested in him and he is entitled to sue

upon it. "

(15) THIS decision was concerned with section 4 of the Arbitration Act 1889 (52

and 53 Vict. c. 49), an English statute, which empowered the Court to stay

proceedings where there was a submission. According to that section, if any party to

a submission or any person claiming through or under him commenced any legal

proceeding in any Court against any other party to the submission or any person

claiming through or under him in respect of any matter agreed to be REFERRED TO,

then any party to such legal proceeding should apply to that Court to stay the

proceedings. In an assignable contract, when assignment was held to have been

made, the assignee was, in the reported decision, held entitled to the benefit of the

contract and entitled to sue upon it. It is difficult to understand how the ratio of this

case helps Shri Sawhney.

(16) SECTION 34 of the Indian Arbitration Act, like section 4 of the English Act,

merely confers on the judicial authority before which legal proceedings have been

commenced by a party to an arbitration agreement in respect of any matter agreed

to be REFERRED TO to arbitration, to stay those proceedings when moved by any

other party to the agreement or any other person claiming under him in respect of

the matter agreed to be REFERRED TO. On the basis of this section, the direction of

the Court below that Shri W. N. Chowdhary be made a party to the arbitration

proceedings is not easy to sustain. The fact that a person claiming under a party to

an agreement is empowered to move the judicial authority, does not establish that

all outsiders can claim a right to enforce an arbitration agreement to which they are

not parties under the law. It is only those persons who claim under a party to an

arbitration agreement who should, in addition to the parties themselves, be held

entitled to claim its benefit and also be held bound by the obligations imposed

thereby. Shri Chowdhary, it is quite clear on the present record, never claimed to

assert his right as an assignee from M/s Rawalpindi Theatres (P) Ltd. On this view, it

is unnecessary to express any considered opinion on the question whether section 4

of the English Arbitration Act and section 34 of the Indian Act are completely

identical in their effect and scope. The submission forcefully pressed by Shri

Sawhney on the authority of Shayler v. Woolf that Shri W. N. Chowdhary must be

held to have been assigned the rights of M/s Rawalpindi Theatres (P) Ltd. under the

terms of Ex. P. 5 is not easy to uphold and I find no justification for the submission

that the terms of Ex. P. 5 purport to assign the right of M/s Rawalpindi Theatres (P)

Ltd. under the contract to Shri W. N. Chowdhary. No other transaction serving as an

assignment has been relied upon. The argument that the conduct of M/s Rawalpindi

Theatres (P) Ltd. and that of Shri W. N. Chowdhary, in the course of the present

litigation, should be held to amount to an assignment in favour of Shri W. N.

Chowdhary is equally devoid of substance. It is noteworthy that Shri Chowdhary has

nowhere, during the long course of this chequered litigation, claimed any right in

himself as an assignee and indeed except as an Attorney for M/s Rawalpindi

Theatres (P) Ltd. Uptil now, he has never even pretended to claim any right in his

own personal capacity as distinct from his capacity as Attorney representing and

prosecuting the claim of M/s Rawalpindi Theatres (P) Ltd.

(17) AS a last resort, Shri Sawhney has submitted that this revision should be

thrown out because there is no jurisdiction infirmity and the impugned order cannot

be held to suffer from any illegality or material irregularity in the exercise of the

lower Courts jurisdiction. I am unable to accept this contention. If Shri W. N.

Chowdhary is not a party to the arbitration agreement and if for this reason, he is

not entitled to claim adjudication of his personal right, then obviously, the direction

given by the Court below is without jurisdiction, and is certainly tainted with a

serious illegality and a material irregularity in the exercise of the jurisdiction vested

in the Court below by law.

(18) THE petitioners objection that after setting aside the award, the Court below

could not remit the case back to the arbitrator, is clearly misconceived and seems to

me to be contrary to the settled view, and indeed Shri Bagai, after half-heartedly

pursuing it, gave up the attempt.

(19) FOR all the foregoing reasons, we allow this revision and delete the direction

from the lower Courts order that the arbitrator should implead Shri W. N.

Chowdhary as a party to the arbitration proceedings. It would of course be open to

the arbitrator to adjudicate upon the rights of the parties to the arbitration

agreement and it would certainly be open to him 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 and if the amount has not been so paid, what is its effect on

the rights and liabilities of the parties to the agreement and to give the necessary

relief to them in accordance with law. There would be no order as to costs.

(20) I agree.