Civil Appeal No 163 of 1951
Appeal by special leave from the Judgment dated the 10th April
1951 of the High Court of Judicature for the State of Punjab at Simla Kapur J in Civil Revision No 286 of 1950 arising out of Order dated the 24th March 1950 of the Court of Subordinate Judge 1st Class Delhi in an Application under Section 33 of Indian Arbitration Act X of 1940
Rattan Lal Chawla K N Agarwal with him for the appellant
Som Nath Chopra for the respondent
February 25
The Judgment of the court was deliv ered by FAZL ALI J
This is an appeal by special leave against the judgment of the Punjab High Court upholding the decision of a Subordinate Judge of Delhi relating to a petition filed by the appellant company under section 33 of the Indian Arbitration Act against the respondents 503 The material facts are these
On the 22nd April 1947 the appellant company insured a car belonging to the first respondent and issued a policy which fully sets out the terms and conditions of the agreement relating to the insur ance
The first respondent left his car in a garage at Lahore and came away to India on the 31st July 1947
Subsequently he learned about the loss of his car and sent a legal notice dated the 18th March 1948 through his advocate Mr AR Kapur to the Head Office of the company at Calcutta claiming a sum of Rs 7000 for the loss of the car
On the 10th April 1948 Mr Kapur received a letter from the Branch Manager of the Company s office at Amrit sar asking for information regarding certain matters stated in the letter
This information appears to have been sup plied on the 30th April 1948
On the 26th May 1948 the company s Branch Manager at Amritsar wrote to the first respondent repudiating the liability of the company for the loss of the car on the ground that the loss was due to communal riots which were going on in the whole of Punjab and was not covered by the agreement of insurance
A simi lar letter was written again by the Branch Manager on the 3rd July 1948 to the first respondent and another letter was written by one Mr Rattan Lal Chawla representing him self to be counsel for the company to Mr AR Kapur on the 1st August 1948
On the 21st November 1949 the first respondent wrote a letter to the Branch Secretary of the Company s office at Calcutta stating that his claim was valid and nominating Mr TC Chopra Assistant Manager Lakshmi Insurance Company Ltd Delhi as arbitrator on his behalf and requesting the company to appoint another person as arbitrator on its behalf
Thereafter the company pre sented an application on the 29th December 1949 in the court of the Senior Sub judge Delhi under section 33 of the Indian Arbitration Act against the first respondent and Mr TC Chopra the arbitrator who is the second respond ent in this appeal praying for 504 1 a declaration to the effect that the reference to arbitration and the appointment of respondent No 2 as sole arbitrator was illegal 2 a declaration to the effect that if the respondent No 2 made any award it would not be binding on the companyand 3 an injunction restraining the respondents Nos 1 and 2 from taking any proceeding in the matter and the respond ent No 2 from making any award
Upon this petition notice was issued to the respond ents and an injunction was issued directing them not to file any award till the date of the next hearing which was fixed for 31st January 1950
On the 4th February 1930 the first respondent wrote to the second respondent the arbitrator that since no arbitrator had been appointed by the company and since the company had refused to appoint any arbitrator he Mr Chopra was to act as the sole arbitra tor
On the 6th February 1950 Mr Chopra wrote to inform the insurance company that he had been appointed sole arbi trator and asked the company to send the statement of its case and to produce all the evidence on the 14th February 1950
On the 10th February 1950 the insurance company filed a petition before the Subordinate Judge Delhi pray ing that the respondents be stopped from proceeding further in the matter so that its application under section 33 may not become infructuous
On the 11th February the Subordi nate Judge issued notice to the respondents fixing the 17th February as the date of hearing and passed the following order Moreover till the decision of this application the arbitrator should not give or pronounce his award but should continue the proceedings
 On the 14th February 1950 the second respondent pronounced his award after making a note to the following effect  Mr GR Chopra the counsel of the defendants sent a telephonic message at 12 AM requesting extension till 1 PM
I agreed and accordingly I waited for 505 him and the plaintiff with his counsel also waited up to 1 PM
Nobody turned up on behalf of the defendants
I commenced the proceedings and took the statement of the plaintiff and the documents that he had produced He made a further note at the end of the award to this effect  As after the giving of the award a notice was served upon me not to give the award I have not sent any formal letter to the parties informing them of the award and its costs
 On the 24th March 1950 the Subordinate Judge passed an order on the company s application under section 33 dis missing it and holding that the terms of clause 7 of the agreement were comprehensive enough to include the points of disputes between the parties now and as such are triable by the arbitrator and not by the court
 The Subordinate Judge concluded his order by observing I therefore hold that the reference to the arbitra tion of the differences is perfectly valid and the points raised by the parties to this application with regard to the abandonment of claim and its becoming irrecoverable are to be decided by the arbitrator
 The judgment of the Subordinate Judge was upheld in revision by the Punjab High Court and the company has now preferred an appeal to this court by special leave
The points that were urged on behalf of the appellant in this appeal are these 1 that the arbitration clause had ceased to be opera tive and the question as to the existence and validity of the arbitration agreement was triable by the court under section 33 of the Arbitration Act and not by the arbitrator and 2 that the award was invalid and not binding on the appellant because it was pronounced in spite of the order of the court dated the 11th February 1950 directing the arbitrator not to pronounce his award
506 Clause 7 of the policy of insurance rims as follows  All differences arising out of this policy shall be referred to the decision of an arbitrator to be appointed in writing by the parties in difference or if they cannot agree upon a single arbitrator to the decision of two arbi trators one to be appointed in writing by each of the parties within one calendar month after having been required in writing so to do by either of the parties or in case the arbitrators do not agree of an umpire appointed in writing by the arbitrators before entering upon the reference
The umpire shall sit with the arbitrators and preside at their meeting and the making of an award shall be a condition precedent to any right of action against the company
if the company shall disclaim liability to the insured for any claim hereunder and such claim shall not within twelve calendar months from the date of such disclaimer have been referred to arbitration under the provisions herein con tained then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder
 It will be noticed that this clause provides among other things that if the company disclaimed liability to the insured for any claim under the policy and such claim was not within twelve calender months from the date of such disclaimer referred to arbitration then the claim should be deemed to have been abandoned and was not recoverable
The case of the company is that it disclaimed liability for the loss of the car on three successive occasions namely on the 26th May 1948 the 3rd July 1948 and the 1st August 1948
The first respondent however did not take any action in regard to the appointment of an arbitrator until the 21st November 1949 ie until more than 12 months after even the last disclaimer by the company
For this reason the claim put forward by the first respondent must be deemed to have been abandoned and he cannot recover anything from the company
On the other hand
the case of the first respond ent which 507 is set out in
his affidavit dated the 17th February 1950 is that there was never any valid disclaimer by the company of its liability
The position that he took up was that the Branch Manager of the company had no authority to disclaim the liability and it could have been disclaimed only by a resolution of the company
Now these being the respective contentions of the parties the question is whether the point in dispute fell to be decided by the arbitrator or by the court under section 33 of the Arbitration Act
Section 33 is to the following effect Any party to an arbitration agreement or any person claiming under him desiring to challenge the existence or validity of an arbitration agreement or an award or to have the effect of either determined shall apply to the Court and the Court shall decide the question on affidavits Provided that where the Court deems it just and expedi ent it may set down the application for hearing on other evidence also
and it may pass such orders for discovery and particulars as it may do in a suit
 The question to be decided is whether the point on which the parties are in dispute is a difference arising out of the policy in terms of clause 7 of the policy
The test for determining such a question has been laid down in a series of cases and is a simple one
The test is whether recourse to the contract by which the parties are bound is necessary for the purpose of determining the matter in dispute between them
If such recourse to the contract is necessary
then the matter must come within the scope of the arbitrator s jurisdiction
In the present case both the parties admit the contract and state that they are bound by it
Indeed the appellant company in order to make good its contention is obliged to rely and does rely on that part of clause 7 of the policy which states that if the company should disclaim liability and the claim be not referred to arbitration within 12 months of such disclaimer the claim shall be deemed to have been abandoned
Evidently the company cannot succeed without calling in aid this clause and 508 relying on it
Again the first respondent does not say that he is not bound by the clause but states that the matter was referred to arbitration before any valid disclaimer was made
The position therefore is that one party relying upon the arbitration clause says that there has been a breach of its terms and the other party also relying on that clause says that there has been no breach but on the other hand the requirements of that clause have been fulfilled
Thus the point in dispute between the parties is one for the decision of which the appellant is compelled to invoke to his aid one of the terms of the insurance agreement
It is thus clear that the difference between the parties is a difference arising out of the policy and the arbitrator had jurisdic tion to decide it the parties having made him the sole judge of all differences arising out of the policy
A large number of cases were cited before us on behalf of the parties but it is unnecessary to refer to them since the question which arises in this appeal is a simple one and is covered by the statement of law which is to be found in the decision of this Court in AM Mair  Co vs Gordhandass Sagarmull C and in a series of English author ities some of which only may be referred to
In Heyman vs Darwins Ltd 2 the law on the subject has been very clearly stated in the following passage  An arbitration clause is a written submission agreed to by the parties to the contract and like other written submissions to arbitration must be construed according to its language and in the light of the circumstances in which it is made
If the dispute is as to 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
Similarly if one party to the alleged contract is contending that it is void ab initio because for exam ple the making of such a contract is illegalthe arbitra tion 11950 SCR 792
2 1941 1 AER337343 509 clause cannot operate for on this view the clause  itself is also void
however the parties are at one in asserting that they entered into a binding contract but a difference has arisen between them as to whether there has been a breach by one side or the other or as to whether circumstances have arisen which have discharged one or both parties from fur ther performance such differences should be regarded as differences which have arisen in respect of  or with regard to  or under  the contract and an arbitration clause which uses these or similar expressions should be construed accordingly
 In Macaura vs Northern Assurance Co 1 the appellant had insured a large quantity of timber against fire and the greater part of the timber having been de stroyed by fire he sued the insurance company to recover the loss but the action was stayed and the matter was re ferred to arbitration in pursuance of the conditions con tained in the policy
The arbitrator held that the claimant had no insurable interest in the goods insured and disal lowed the claim
One of the points raised in the case was that the arbitrator had no jurisdiction to decide the mat ter but that contention was rejected by Lord Sumner in these words The defendants do not repudiate the policy or dispute its validity as a contract on the contrary they rely on it and say that according to its terms express and implied they are relieved from liability see Stebbing s case2 Woodall vs Pearl Assurance Co3
It is a Fallacy to say that they assert the policy to be null and void In Stebbing vs Liverpool and London and Globe Insurance Company Limited2 to which reference was made by Lord Summer the policy of insurance contained a clause referring to the decision of an arbitrator all differences arising out of this policy 
It also 1 3  2  66 510 contained a recital that the assured had made a proposal and declaration as the basis of the contract and a clause to the effect that compliance with the conditions indorsed upon the policy should be a condition precedent to any liability on the part of the insurers
One of the conditions provided that if any false declaration should be made or used in support of a claim all benefit under the policy should be forfeited
In answer to a claim by the assured the insurers alleged that statements in the proposal and declaration were false
When the matter came before the arbitrator the assured objected that this was not a difference in the arbitration and that the arbitrator had no power to deter mine whether the answers were true or not or to determine any matters which called in question the validity of the policy
In holding that the arbitrator had jurisdiction to decide the matter Viscount Reading CJ observed as fol lows  If the company were seeking to avoid the contract in the true sense they would have to rely upon some matter outside the contract such as a misrepresentation of some material fact inducing the contract of which the force and effect are not declared by the contract itself
In that case the materiality of the fact and its effect in inducing the contract would have to be tried
In the present case the company are claiming the benefit of a clause in the contract when they say that the parties have agreed that the statements in question are material and that they induced the contract
If they succeed in escaping liability that is by reason of one of the clauses in the policy
In resisting the claim they are not avoiding the policy but relying on its terms
In my opinion therefore the question whether or not the statement is true is a question arising out of the policy
 The main contention put forward on behalf of the appel lant is that the points in dispute fall outside the juris diction of the arbitrator firstly because the existence of the arbitration agreement is challenged and secondly because the sole object of the application under section 33 of the Arbitration Act is tO have the 511 effect of the arbitration agreement determined
In our opinion neither of these objections is sound
How can it be held that the existence of the arbitration agreement is challenged when both parties admit that the clause in the policy which contains that agreement binds them
It is neither party s case that there is no arbitration agreement in the policy
On the other hand both parties admit that such agreement exists and each of them relies on it to support its case
It is true that the appellant contends that the arbitration agreement has ceased to be applicable but that contention cannot be sustained without having recourse to the arbitration agreement
It is said that the agreement no longer subsistsbut that is very different from saying that the agreement never existed or was void ab initio and therefore is to be treated as non existent
Again no question of determining the effect of the arbitration agreement arises because there is no dispute between the parties as to what it means
The language of the arbitration clause is quite clear and bothparties construe it in the same way
The real question between them is whether the first respondent has or has not complied with the conditions of the agreement
But this question does not turn on the effect of the agreement
This is the view which has substantially been taken by the High Court and in our opinion it is correct
The second point urged before us is that the award is invalid since it was made in spite of the court s injunc tion directing the arbitrator not to pronounce any award
This point however does not in our opinion fall within the scope of this appeal
The application under section 33 of the Arbitration Act which is the subject of this appeal was filed before the award was pronounced
In that applica tion there is no reference to the award nor is there any reference to the circumstances which are now stated to invalidate the award and which happened after the applica tion was filed
The learned counsel for the appellant made an application before us praying for the amendment of the petition under section 38 by introducing certain 512 additional facts and adding a prayer for declaring the award to be invalid but it was rejectedby us
It should be stated that as early as the 24th March 1950 the Subordi nate Judge in dismissing the appellant s petition under section 33 made the following observations  During the pendency of the arbitration proceedings the arbitrator pronounced the award 
The award has now been filed in the court of section Mohinder Singh Sub Judge 1st class Delhi
Any objection against the award can be filed there
In this application in which there is no prayer for setting aside the award which exists I do not think it proper to decide the question of the validity of the award
 In our opinion the Subordinate Judge correctly indi cated the course which it was open to the appellant in law to adopt for the purpose of questioning the validity of the award but not having taken that course and not having made any application in the courts below for amending the petition under section 33 the company cannot ask this court to go into the validity of the award by widening the scope of the original petition
This court is always in favour of shortening litigation but it would be a very unusual step to allow the petition under section 33 to be amended now and to decide a question involving investigation of facts with out having the benefit of the judgments of the courts below
In the result the appeal fails and is dismissed with costs
Appeal dismissed
Agent for respondent No 1 SD Sekhri


Summary:
The petitioner who was doing business in tobacco was charged with the contravention of Rules 151C and 226 of the Central Excise Rules 1944 framed under the 
The Collector finding the charges to be proved ordered confiscation of the goods found in the petitioner s warehouse and levied duty thereon in lieu of confiscation and also imposed a penalty of RS
2000
The petitioner challenged the validity of the orders on the grounds inter alia that sections 6 and 8 of the Act and the Rules made thereunder were beyond the legislative competence of the Central legislature in view of the fact that though the provisions of the Act which provided for the levy of excise duties might fall within item 45 of List 1 read with section 100 of the Government of India Act 1935 the Act in question would also be covered by items 27 and 29 of List 11 as the possession and trade in tobacco were also regulated and would to that extent be ultra vires
363 Held that the various provisions of the  and the Rules made thereunder were essentially connected with the levying and collection of excise duty and in its true nature and character the Act remained one under item 45 of List 1 and that the incidental trenching upon the provincial field of items 27 or 29 of List 11 would not affect its constitutionality
It is within the competence of the Central legislature to provide for matters which may otherwise fall within the Competence of the Provincial Legislature if they are necessarily incidental to effective legislation by the Central legislature on a subject of legislation expressly within its power
State of Rajasthan vs G Chawla   and Cooverjee Bharucha vs The Excise Commissioner of Ajmer   followed
Attorney General for Canada vs Attorney General for British Columbia and Attorney General for Canada vs Attorney General for Quebec  relied on