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Ram Sahai Vs. Babu Lal - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtAllahabad High Court
Decided On
Case NumberSecond Appeal No. 2105 of 1953
Judge
Reported inAIR1965All217
ActsArbitration Act, 1940 - Sections 14 and 32
AppellantRam Sahai
RespondentBabu Lal
Appellant AdvocateS.N. Verma, Adv.
Respondent AdvocateAmbika Prasad, Adv.
DispositionAppeal allowed
Excerpt:
arbitration - effect of non filing of award - sections 14 and 32 of arbitration act, 1940 - suit on original cause of action - award not filed - effect on subsequent suit - if an award has not made a rule of court it remains a dead letter - held, defendant is not entitled to set up the award in defence as a bar to such suit. - - it deals with arbitrations in suits as well as arbitrations without intervention by a court. such a decree is executable like any other decree of a competent civil court. sections 14 to 17 of the act provide machinery for enforcing the award as well as for challenging the same. the object is that for enforcing the award as well as for challenging it the parties must come to court promptly and not allow it to get stale. it positively provides for their..........the trial court came to the conclusion that the parties had referred the dispute involved in this suit to arbitration and the award is binding on them and as such the suit is not maintamable. on appeal the lower appellate court affirmed the finding and confirmed the decree. it held that the suit was barred by section 32 of the indian arbitration act, 1940.4. aggrieved with the decision of the lower appellate court, the plaintiff has come to this court in second appeal. it is urged for the appellant that the award not having been filed in court and no decree having been passed thereon under section 17, arbitration act, it was wholly ineffective; it does not extinguish the pre-existing rights of the parties and that the suit being based on the original cause of action is maintainable. on.....
Judgment:

Satish Chandra, J.

1. This is a plaintiff's appeal. It arises out of a suit for injunction and damages. The parties are neighbours residing in adjoining houses. There is a piece of land in between the houses of the parties shown as ABCDEF in the plaint map. The plaintiff claims that he is the owner in possession of this land. The defendant has recently demolished the plaintiff's wall A B and has fixed a door therein and intends to use the land aforesaid unlawfully. He prayed for an injunction to restrain the defendant from using this land and to direct him to close the opening made by him at AB Rs. 25/- were claimed as damages.

2. The defendant alleged that he had a right of way over the piece of land in dispute, that the plaintiff attempted to close the opening at AB and thereupon a dispute arose between the parties. The parties by a written agreement referred the dispute on 22-6-1950 to the arbitration of three named persons. The arbitrators inspected the locality, heard evidence and decided the dispute that very day. Their written award was to the effect that the defendant will have a right of way over the land in dispute and that he will have a right to fix a door at AB. It was alleged that the suit, being in substance to set aside the award, was not maintainable.

3. The trial court framed a preliminary issue on the maintainability of the suit in view of the existence of the alleged award. It is the common case of the parties that the award set up in defence was never made a rule of the court. The trial court came to the conclusion that the parties had referred the dispute involved in this suit to arbitration and the award Is binding on them and as such the suit is not maintamable. On appeal the lower appellate court affirmed the finding and confirmed the decree. It held that the suit was barred by Section 32 of the Indian Arbitration Act, 1940.

4. Aggrieved with the decision of the lower appellate court, the plaintiff has come to this Court in second appeal. It is urged for the appellant that the award not having been filed in court and no decree having been passed thereon under Section 17, Arbitration Act, it was wholly ineffective; it does not extinguish the pre-existing rights of the parties and that the suit being based on the original cause of action is maintainable. On the other hand, the respondent contends that the suit is in substance to nullify the effect of the award and is barred by Section 32, Arbitration Act, 1940 and that the award constitutes a successful defence to the suit.

5. The question that arises for determination in this appeal is the scope and effect of Section 32 of the Arbitration Act; whether It merely bars suits for enforcing awards or precludes an award being set up in defence also. On both these questions there is a widespread controversy among the various high courts of the country. The question whether an award which had not been made the rule of the court could be set up in defence came up before the Supreme Court In the case of Kashinathsa Yamosa v. Narsingasa : [1961]3SCR792 . Their Lordships noted the cases for and against on the question put stated that it was not necessary to express a considered opinion on that question.

6. Prior to the Arbitration Act, 1940, the law of arbitration in British India was contained in two enactments, the Indian Arbitration Act of 1899 and the second schedule to the C. P. C. The Indian Arbitration Act of 1899, though technically extended to the whole of India, was expressed to apply to Presidency Towns and to such other towns to which the appropriate local government may make it applicable. Broadly speaking, under that Act, if any question arose as to the validity of the reference or of the award, the party objecting had several courses open. He could file a suit for an injunction to prevent the arbitration proceedings from taking place or from being concluded. He could await the announcement of the award and thereafter apply to the Court to have the award set aside. He could wait still longer until the award was put in execution in Court and then file a suit for a declaration that the award was not binding and for an injunction to restrain the execution. The Second Schedule to the Civil Procedure Code applied to arbitrations in other areas. Several avenues for causing trouble were open to a party objecting to an award. Under both these enactments there were two ways in which an award could be enforced. It may be made the rule of the Court by an application under the Arbitration Act, 1899 or under the Civil Procedure Code, as the case may be; or the party may treat the award as an independent source of title and file a suit to enforce it.

7. In Muhammad Newaz Khan v. Alim Khan, 18 Ind App 73 : ILR 18 Cal 414 (PC) the Judicial Committee of the Privy Council held that, whether or not an application to have the tward made a rule of the Court is tiled, the award retains its ordinary legal validity and that the refusal by the Court to make the award a rule of the Court does not render the award invalid. The award can be relied upon in any suit relating to the subject-matter dealt with by it. In E. D. Sassoon and Co. v. Ramdutt Ramkishan Das AIR 1922 PC 374, the Privy Council held that Section 15 of the Arbitration Act, 1899 does not indicate that the award when filed is to be deemed to be a decree of the Court, but only that it is enforceable as if it were a decree. Their Lordships ruled that the fact that the award has been enforced by execution under Section 15, is no bar to a suit to have it declared void and for consequential relief.

8. The Civil Justice Committee in its report (1924-25) stated that on the whole, experience shows that arbitration is an extraordinary ineffective device; that the scheme of the Arbitration Act breaks down constantly. The reality of the evil was in due course realised. The present Arbitration Act was added to the statute book in 1940. It sought to consolidate and standardize the law relating to arbitration throughout Britisn India and endeavoured to provide simple, speedy and effective settlement of differences. It deals with arbitrations in suits as well as arbitrations without intervention by a court.

9. Chapter 2 of this Act deals with arbitration without Intervention by a Court. When an award is pronounced outside Court, Section 14 provides that the arbitrators shall, at the request of any party or, if so directed by the Court, cause the award to be filed in Court. Under Article 178, limitation Act, an application for filing the award can be made to the Court only within six months from the date of the making of the award. When the award has been tiled the Court is to give notice to the parties thereof. Article 158 of the Limitation Act provides a period of thirty days from the receipt of the notice of the filing of the award, for filing applications to set aside the award. If the Court does not deem it fit to modify the award or to remit it for reconsideration to the arbitrators, says Section 17, the Court shall pronounce judgment according to the award and thereupon a decree shall follow. Such a decree is executable like any other decree of a competent civil Court. In Chapter 5 of the Act two new provisions were added viz., Sections 31 and 32. Section 31 provides that notwithstanding anything contained in any other law, all questions relating to the validity, effect or existence of an award or arbitration agreement would be decided by the Court in which the award has been or may be tiled and by no other Court.

10. This provision seeks to bring all arbitration disputes under the control of one Court. Section 32 of the Act is in the following terms:

'Notwithstanding any law for the time being in force, no suit shall lie on any ground whatsoever for a decision upon the existence, effect or validity of an arbitration agreement or award, nor shall any arbitration agreement or award be set aside, amended, modified or in any way affected otherwise than as provided in this Act.'

This also is a new provision. It prohibits institution of suits which involve a decision of matters mentioned in that section. It also says that an award shall not be adjudged otherwise than as provided in this Act. Sections 14 to 17 of the Act provide machinery for enforcing the award as well as for challenging the same. The Limitation Act provides for short periods for applications for those purposes. The object is that for enforcing the award as well as for challenging it the parties must come to Court promptly and not allow it to get stale. Section 33 of the Act provides for another remedy to a person desiring to challenge the existence or validity of an award or to have its effect determined. Such a person has to apply to the Court under this section. It has been held by a Bench of our Court in Balwant Singh v. Ram Charan Singh : AIR1944All188 that the refusal of an application under Section 33 is not tantamount to passing a decree in accordance with the award. This section, therefore, does not provide for the enforcement of awards. The Arbitration Act makes a complete provision with respect to awards. It positively provides for their enforcement as well as nullification, and it negatively prohibits suits for those purposes. The question remains. Does an award have any validity of its own?

11. One of the earliest pronouncements on this aspect was made by Chagla, J. in Ratanji Virpal and Co. v. Dhirajlal Manilal, AIR 1942 Bom 101. His Lordship observed:

'Under the present Act no proceedings can be taken on the award till after it has been filed, and I fail to see how a party can possibly be prejudiced by the existence of an award which has not been filed in Court. Under the old Arbitration Act, it was competent to a party who obtained an award without filing it to file a suit thereon.

Further, the award became enforceable as a decree as soon as it was filed. But, under the present Act all proceedings with regard to the arbitration agreement or the award have to be taken as provided by the Act, and before the tribunal indicated by the Act.... under Section 17 of the Act the Court has to pronounce judgment according to the award and a decree follows. It is only this decree that can be executed.'

12. The present Article 158 of the Limitation Act was introduced by an amendment in the Limitation Act made by Section 49 Clause (2), Arbitration Act, 1940. Chagia, J. in the aforesaid case further observed:

'Therefore, in amending the Limitation Act the Legislature contemplated that an application for setting aside an award could only toe made after the date of service of the notice for filing the award and, therefore, the limitation of thirty days is fixed after that particular date.'

13. His Lordship concluded that an independent suit to set aside the award will not lie. In the aforementioned case of : [1961]3SCR792 the Supreme Court made a significant observation:

'But, in our judgment, the true effect of what are called awards is not by their own force, to create any interest in immoveable property;....'

True, their Lordships were dealing with the question whether the award in that case, being unregistered, was admissible in evidence. But, the observation quoted above contains a principle of general application. By itself, the award has no effective value. It prejudices no one. On its own it does not create, extinguish or pass any title or interest. A judgment has to be pronounced upon it and a decree follows. The award merges in the decree. It is the act of the Court in passing a decree on it which affects the rights of the parties. Till the decree is passed the award has no status in the eye of law. It will not touch the pre-existing rights of the parties whatever they are. The parties in effect remain where they were prior to the commencement of arbitration. Their title and their disputes remain unsettled. The original cause of action or the original demand can be vindicated in a Court of law and the award will toe no impediment. To such a suit Section 32, Arbitration Act is not attracted. The Act says that the Court indicated by it alone, on an application made for the purpose within the prescribed limitation, can make the award effective by pronouncing judgment thereon. The achieving of this purpose in other proceedings like suits will frustrate, the legislative intent to eradicate the pre-existing evil. Wo such suit lies. See Shriram v. Shripat Singh : AIR1957All106 .

14. When the defence sets up an award in answer to a suit on the original cause of action, it virtually asks the Court to uphold the award and pronounce judgment on it. This will be circumventing the statute and is alike, not permissible.

15. Turning to the authorities, I find that the consensus of opinion is in favour of the view I have taken. In Seo Narainlal v. Prabhu Chand : AIR1958Pat252 a Full Bench of the Patna High Court held that an award by itself is of no effect and that it becomes effective only when a judgment has been pronounced on its basis followed by a decree and that it cannot be agitated even by way of a defence in a proceeding other than a proceeding envisaged by the Act itself. The Full Bench approved two earlier cases of the Patna High Court which had taken the same view, viz. Sia Kishori Kuer v. Bhairvi Nandan Sinha : AIR1953Pat42 and Lachhuman Singh v. Makar Singh AIR 1954 Pat 27. Their Lordships also agreed with the above-mentioned observations of Chagla, J. given in the case of AIR 1942 Bom 101.

16. This Full Bench decision was followed in the Patna High Court subsequently in Wali Mohammad v. Mst. Pano : AIR1960Pat128 and Mst. Habiba Khatun v. Nawab Lal : AIR1961Pat372 . A discordant note was struck by a Bench of the Patna High Court in Government of India v. Jamunadhar Rungta : AIR1960Pat19 . This case was dissented from in the subsequent case of Mst. Habiba Khatun : AIR1961Pat372 referred to above on the ground that it was contrary to the Full Bench and to an earlier Division Bench of that Court.

17. In the Bombay High Court the view expressed by Chagia, J. in the case of Ratanji Virpal and Co. AIR 1942 Bom 101 referred to above, has been followed in Narmadabai v. Natwarlal Chunnilal : AIR1953Bom386 . Chagla C. J. reiterated it and held that the Arbitration Act, contains the whole law with regard to arbitration and also contains the only procedure which can be resorted to with regard to all matters arising, out of arbitration agreements and awards. These two Bombay cases were followed in Chandrabhaga Sadashiv v. Bhikachand Hansaji : AIR1959Bom549 ; it was held that the scheme of the Arbitration Act is to treat arbitration effective only if a decree were passed on the award and that a suit on the original cause of action after an abortive or incomplete arbitration is not maintainable.

18. In the Madras High Court there is a conflict of opinion. In Venkataraya Goundan v. Mallappa Goundan AIR 1946 Mad 348 it was held that the scheme of that Act is to prevent the parties to arbitration from agitating questions relating to arbitration in any manner other than that provided by the Act. In another case B. Yenkatasubbayya v. a. Bapadu : AIR1951Mad458 , it was held that a defendant who has not taken steps to have the award filed and dealt with under the Arbitration Act, is not entitled to rely upon it in answer to an action. In two cases Madras High Court took the contrary view. Suryanarayana Reddy v. Venkata Reddy, AIR 1948 Mad 436 a Bench took the view that a defendant is not precluded from putting forward an award which has been fully performed by him but which was not made a rule of the Court, in answer to a suit on the original cause of action. The main reason for this view was expressed by their Lordships as follows:

'The argument on behalf of the plaintiff would involve our holding that even in a case where tooth parties to an award are satisfied and it is fully carried out and there is no need for getting a decree passed in its terms and none is passed, one of the parties can subsequently change his mind and enforce the original cause of action and the defendant cannot resist the suit. It seems to us that the provisions of the Act do not entail such a result.'

19. This line of reasoning, with respect, is correct, but on a different basis. In such a case, by all the parties acting upon the award a mutual agreement comes into existence. It is this agreement, which can be relied upon in answer to a suit but not the award itself. This is clear from the following observations of the Supreme Court in : [1961]3SCR792 :

'Where an award made in arbitration out of Court is accepted by the parties and it is acted upon voluntarily and a suit is thereafter sought to be filed by one of the parties ignoring the acts done in pursuance of the acceptance of the award, the defence that the suit is not maintainable is not founded on the plea that there is an award which bars the suit but that the parties have by mutual agreement settled the dispute, and that the agreement and subsequent actings of the parties are binding.... Such a plea is, in our judgment not precluded by anything contained in the Arbitration Act.'

20. The actual decision in this Madras case as understandable, but the view expressed therein that Section 32, Arbitration Act confines itself to a suit and does not extend to a defence does not appear to be sound.

21. In S. Surayya v. N. Anandayya : AIR1951Mad525 a single Judge of the Madras High Court followed the 1948 case.

22. To resolve this conflict, a full Bench was constituted by the High Court of Andhra Pradesh. The Full Bench held in the case of Pamandass Sugnaram v. T. S. Manikyam Pillai : AIR1960AP59 that no party can be prejudiced by the mere existence of an award; an award by itself does not extinguish the rights of the parties and that it is not open to a defendant to set up such an award as a bar to a suit filed on the original cause of action. This view of the Full Bench was followed subsequently by that Court in Pamandas Sugnaram v. T. S. Manikyam Pillai : AIR1963AP28 .

23. There are two cases of the Nagpur High Court which deserve mention. In Nanhelal v. Singhai AIR 1944 Nag 24 it was held that Section 32, Arbitration Act bars a suit challenging an award, but does not bar a suit to enforce an award. There is no discussion of the point. The distinction made does not appeal to reason. This case has been specifically dissented by the various cases of the Patna, Bombay, Andhra Pradesh and Madras High Courts referred to above. In Nathulal v. Behari Lal AIR 1952 Nag 65 it was held that a person who has continued to be a party to an arbitration till the stage of award is barred from bringing a suit on the original cause of action. This seems to have been a case of special facts. It has not been accepted as laying down the correct law by the Bombay High Court in : AIR1959Bom549 .

24. The Madhya Pradesh High Court in Shyam Singh v. Pralhadsingh Tikaram : AIR1962MP66 and the Rajasthan High Court in Firm Gulzarimal Gheesalal v. Firm Rameshchandra Radheshyam have followed the Nagpur High Court's decision in Nathulai's case AIR 1952 Nag 65. They hold that a suit on the original cause of action is barred by Sections 32 and 33 of the Arbitration Act. These cases proceed on the assumption that an award once made affects the rights of the parties. The original cause of action becomes extinguished, and, merges in the has ruled the contrary in the case of : [1961]3SCR792 (Supra).

25. In my opinion, the sounder view appears to be that if an award has not been made a rule of the Court it remains a dead letter. A suit on the original cause of action is maintainable and it cannot be successfully resisted by setting up the award in defence.

26. In this view of the matter the appeal succeeds. Both the courts below have not decided the suit on its merits. It is, therefore, necessary to remand it to the trial Court.

27. The appeal is allowed, the decree is set aside and the suit is remanded to the trial court for decision on merits in the light of the observations made above. Costs heretofore will abide the result.


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