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Rustomjee Dorabsha and anr. Vs. Manmal Prabhudayal - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtMadhya Pradesh High Court
Decided On
Case NumberMisc. Appeal No. 147 of 1960
Judge
Reported inAIR1964MP15
ActsArbitration Act, 1940 - Sections 30; Tenancy Law; Madhya Bharat Zamindari Abolition Act, 1951 - Sections 3
AppellantRustomjee Dorabsha and anr.
RespondentManmal Prabhudayal
Appellant AdvocateS.D. Sanghi, Adv.
Respondent AdvocateK.A. Chitale, Adv.
DispositionAppeal dismissed
Cases ReferredRamsahay v. Harishchandra
Excerpt:
.....outside the scope of the suit. the position certainly would be different if persons who are not parties to the suits are affected or if the two parts of the award are not clearly severable, or where the decision in regard to one is so inextricably mixed with the decision on the other that it is impossible to see how much the one has affected the other. ' it further found that a separate agreement with persons that were not parties to the suit would not make the award any better. but we are dealing with a case where there is no question of persons outside the suit, and further, the additional subject-matter in the award is clearly severable from the subject-matter of the suit. ' fuither authority for this view is found in the decisions of other high courts as well. in the present case..........communication from the arbitrators. therefore, there is nothing illegal in the reference to the umpire.ground (iii)-7. from time to time parties disappointed with an award go to the court urging that the arbitrator or the umpire, as the case may be, is guilty of judicial misconduct, because he has not set out the reasons. there are a large number of reported rulings of various high courts clearly to the effect that an arbitrator need not set out the reasoning in the manner of a regular court. why it should be so is simple, because a regular court derives its authority from statute and has to write a judgment which most often is subject to further scrutiny on facts as well as law by a superior court in appeal or revision. an arbitrator, on the other hand, gets his jurisdiction by.....
Judgment:

Krishnan, J.

1. This is the defendants' appeal from a decree for the arrears of rent of a leased factory and premises included, based on an umpire's award, with a few modifications by the 'Court substantially in their favour. This is one ot the four cases that have come up before this Court at about the same time in which different problems concerning awards on arbitrations have been raised and decided. Quite a number of grounds were raised before the trial Court by the defendants, most of which were rejected. Before this Court the following grounds are emphasised:

(i) The reference itself was invalid because it had included two items of claim which was outside the scope of the suit; this is a basic illegality not cured by the Court's separating the portion within the scope of the suit, and basing its decree on that only, (ii) The umpire was not properly appointed at all and as such did not get any jurisdiction, (iii) The award does not contain any reasoning so that we are in doubt as to whether the umpire gave due regard to the evidence before him. (iv) The proceedings before the arbitrators were bad for several defects, in particular, refusal to permit the defendants to amend their statements, (v) The lease itself was against the law -- both for contravention of the statute in force at that time and in view of the subsequent events by which the plaintiff was divested of his property in the leased factory and premises, (vi) Finally, the failure of the umpire to comply with, several formal requirements also vitiates the award.

2. The facts of the case are broadly common ground. The defendants were the lessees of a bone Crushing factory and the premises attached to it for a fixed monthly rental. An additional amount was provided as rent for a railway siding which the lessor was to get opened. The siding, incidentally, was not opened, and the claim was restricted only to that separately fixed for the premises and the land. This point, however, is of interest for the consideration of the defendants' plea of frustration for failure on the part of the lessor to get the siding opened. The defendants paid the rent upto the end of August 1952, but defaulted during the later period. A suit was filed for the rent payable upto the end of March 1954, with an additional amount as interest. A number of grounds in defence were raised including the statutory invalidity of the lease, the alleged failure on the part of the lessor to observe the terms, and the effect of the Zamin-dari Abolition Act, by which, according to the defendants, the property itself had vested in the State Government,

At one stage, the suit was referred to arbitration by two arbitrators, one appointed by each of the two parties, and an umpire also named, in case the arbitrators failed to do the arbitration ordid not agree. The matters proceeded with various Relays, petitions, and the like, till ultimately it was found that the arbitrators would not arbitrate. Accordingly, a prayer was made by the plaintiff that the matter should be referred to the umpire (Shri C. M. Mehta, Solicitor at Bombay). After calling upon the defendants to show cause why the dispute should not be referred to him in accordance with the agreement, the matter was referred to him; he, in his turn, gave an award granting the plaintiff certain amounts of money as rent for the suit period plus two additional sums specified; one, as the rent for the subsequent period, and the other, as compensation for the damage caused to the machinery. There was some delay in the filing of the award; but it was condoned and the time enlarging by an express order of the Court.

In reply to the plaintiff's prayer that a decree should be passed on the basis of the award, the defendants urged various grounds why it could not be, eighteen in number. The Court considered them and rejected all but one. It held that the grant of compensation for damage to the machinery and future rent was really outside the scope of the arbitration, being outside the scope of the suit itself; but this was .severable from the dispute that could be, and had been, properly referred to arbitration, and accordingly passed a decree only for the rent for the suit period and interest, plus future interest and costs. From this order, the defendants have come up in appeal. There is no appeal by the plaintiff for the part of the award that has been disallowed.

Ground (i)

3. In examining the allegations that the umpire went outside the scope of the suit itself, one has to see whether the two additional items are, for one thing, really outside the scope of the suit, and for another, whether they are distinct and severable from the proper subject-matter. The reference itself has been marked Ex. 45 and was made in accordance with a joint petition of the parties. Paragraph 1 runs thus -

'All matters in dispute and claims in the suit of both the parties hereto as well as matters and disputes upto date in respect of any damages arising after the filling of the suit, including the question of all costs of the suit of the said parties and about the rent alleged to be due to plaintiff after the date of filing of the suit till today and the deposits made by the defendants with the plaintiff are hereby referred to the arbitration.'

Thus, the two additional items, namely, damages on account of the machinery and the rent for a period after the filing of the suit, are covered by the wording of the reference. The learned Additional District Judge accepted the argument of the defendants that these were not, properly speaking, the subject-matter of the suit. Frankly, another, view is at least equally plausible, because the claim of damages in regard to leased property can be made subject to taxation within the same suit by amendment. Similarly, in a suit for rent on a lease, compensation for use of property during a subsequent period, calculated on the basis of rent or on any other basis, may be claimed after amending the pleadings and payingfurther Court-fee. At all events, the position was not similar to that in I. G. H. Ariff v. Bengal Silk Mills Ltd., AIR 1949 Cal 350, where the arbitrator went so far outside the scope of the reference that it was impossible for the Court to estimate how his views on the dispute properly before him were affected by his views on the disputes which were not properly before him. Anyway, the lower Court having held in favour of the defendant-appellants that the claims be excluded from the award, we need here only examine whether they are distinct and severable from the relief that was expressly sought in the plaint.

4. On facts, it calls for no elaborate discussion. Clearly, the claims under different headings are separate, and if the Court did exclude some, it has no bearing either on the competency of the umpire to investigate the remaining claims, or on the ability of the Court to find that the umpire's decision on the proper subject-matter of the suit has not been affected by his decision on what the Court (rightly or wrongly) holds to be something outside the scope of the suit. On law, there is ample authority for the proposition that in the event of the award covering a field wider than the proper subject-matter of the reference and the additional subject-matter is distinct and severable, the Court can accept the award in regard to the former. The position certainly would be different if persons who are not parties to the suits are affected or if the two parts of the award are not clearly severable, or where the decision in regard to one is so inextricably mixed with the decision on the other that it is impossible to see how much the one has affected the other. That was the position in the Calcutta case already referred to. This principle has been laid down after full consideration in Ram Protap v. Durga Prasad, AIR 1925 PC 293. The law of arbitration in those days was contained in the second schedule to the Civil Procedure Code. But the principles in this regard are just the same;

'It is incumbent upon arbitrators acting under an order made in pursuance of paras 1 and 2 strictly to comply with its terms.'

In that case, some of the persons affected by the award as was placed before the Court were not even parties to the suit. Accordingly, the Privy Counsel held further -

'It is impossible according to the Statute law of India that one and the same arbitration should be held as to matters within the jurisdiction of the Court and matters without the jurisdiction of the Court, between the parties to the suit and between them and other persons and partly upon an order of reference and partly under an agreement.'

It further found that a separate agreement with persons that were not parties to the suit would not make the award any better. These principles are of course unexceptionable and binding; but we are dealing with a case where there is no question of persons outside the suit, and further, the additional subject-matter in the award is clearly severable from the subject-matter of the suit. A position similar to this came up in Chidambaram v. Subramanian, AIR 1953 Mad 492. Following the older rulings and understanding the Privy Council decision (supra) in the manner I have set out, the Madras High Court held -

'There was no reason why where the reference and the award consist of distinct and severable parts, the valid portions should not be upheld.'

Fuither authority for this view is found in the decisions of other High Courts as well. For example, in Dulari Devi v. Eajendra Prakash, AIR 1959 Allahabad 711, the award not only touched matters outside the suit but even affected the interests of non-parties. Still, it was held -

'If there are portions in the awards which are within the jurisdiction and which are beyond its jurisdiction and they are separate, then the Court can ignore the portion which was without jurisdiction and pass a decree in terms of the award which is within the jurisdiction of the arbitrators.'

5. This general principle has not been seriously questioned by the appellants here; but it is urged that the instant case is different from those on which the principle of severability has been followed by the different High Courts. In all of them, it is pointed out, there was no excess in the reference itself and it was only the award that went beyond the scope of the suit. In the present case it is argued that there are additional items mentioned in the reference itself, so that the arbitration was bad ab initio and the principle of severability cannot be applied. I do not agree. Even supposing that the reference made by the Court mentions items of dispute that could not properly be considered in the suit, I fail to see why the principle of severability which has been applied by the Courts to a mixed award should not be applied to what may be called a mixed reference, provided of course, that the subject-matter outside the scope of the suit is distinct and severable from that within. Thus, even on the assumption that the two items referred to are not properly within the scope of the suit, still, the award to the extent it has been accepted by the Gourmand included in the decree is good.

Ground (ii) -

6. The next ground concerns the propriety of the dispute being referred to the umpire in the manner in which it was done by the Court. Even if there was any formal irregularity in this respect, the defendants cannot question it at this stage. They were given an opportunity to show cause why the reference should not be made to the umpire and further, after the umpire received the papers, they entered appearance before him and filed written statements and did not in any manner suggest that the stage for the umpire's entry on the arbitration had not come. Still, the point having been raised, may be considered for what it is worth. The relevant portion of the reference is this -

'... ... ... Such arbitrators are to make theiraward in writing within four months ... ... ... andin the event of their not agreeing or not making the award within time or as directed by the Court from time to time, the suit matters and claims including the question of costs shall be referred to the umpire Shri Chandrakant Mehta ... ...'

In this case, after the lapse of time, the plaintiff alleged by petition that one of the arbitrators was not functioning at all. It was nobody's case that this was not true, or that the arbitrators had agreed and were taking steps to file the award. TheCourt did not wait for a formal communication by them expressly of their failure to agree oar inability to send the award. This was patent from their conduct. The point to note is that under the agreement the umpire had intrinsic jurisdiction given by the parties to enter into the arbitration in the event of the non-agreement on the part of the arbitiator or their failure to give the award. A communication by them expressly setting this out was not a requirement for the umpire's jurisdiction. The moment the Court found in one manner or the other that the occasion had arisen, it could make the reference without waiting for such communication. All that it had to do was to satisfy itself that there was no mistake or misunderstanding in plaintiff's allegation before it that one of the arbitrators was not functioning at all. Thereupon it noticed the defendants to show cause why the matter should not be withdrawn from the arbitrators and sent to the umpire. They did not show cause: but on the contrary, when informed of the reference to the umpire, went and conducted their case before him, without requesting him or the Court to desist because the arbitrators were still acting. Thus, it was a case of the umpire having jurisdiction all the time, and the occasion having arisen to the knowledge of the Court even without a formal communication from the arbitrators. Therefore, there is nothing illegal in the reference to the umpire.

Ground (iii)-

7. From time to time parties disappointed with an award go to the Court urging that the arbitrator or the umpire, as the case may be, is guilty of judicial misconduct, because he has not set out the reasons. There are a large number of reported rulings of various High Courts clearly to the effect that an arbitrator need not set out the reasoning in the manner of a regular Court. Why it should be so is simple, because a regular Court derives its authority from statute and has to write a judgment which most often is subject to further scrutiny on facts as well as law by a superior Court in appeal or revision. An arbitrator, on the other hand, gets his jurisdiction by consent of the parties and his decision on facts is in no event subject to scrutiny by Courts except on the ground of

'corruption or fraud, and one other, which though it is to be regretted is now firmly established, viz., where the question of law necessarily arises on the face of the award or upon some paper accompanying and forming part of the award (Champsey Bhara and Co. v. Jivraj Balloo Spinning and Weaving Co. Ltd., AIR 1923 PC. 66).

This has been discussed at some length in thia Privy Council decision which is still good law and has been followed by different High Courts in quite a number of later decisions. Postponing for the moment the consideration of the points of law alleged here, on facts or even on points of law outside that category the arbitrator need not give any reasons and need only set down his decision in a clear and unambiguous manner. Actually, the award in the instant case is just as straightforward as the award that came up for consideration before the Privy Council in the case noted above. The decision should, on the face of it be intelligible.,' but need not be one with which the Court is inagreement or which the Court would arive at, bad the matter been before it in a regular hearing.

8. A cumber of rulings have been referred to on behalf of the defendants; but they are all cases where either there was a patent point of law on the face of the award, or the award itself contained passages or clear indications that the arbitrator had gone hopelessly wrong. If, for example, an arbitrator chooses to decide by drawing lots, or one appointed expressly on the ground of some technical skill or knowledge fails to apply them, or the award takes a line which is patently preposterous, then the position would be different. The Court is, as it were, invited by a 'speaking order' to see whether it is in accordance with the requirements of natural justice or public policy. But when an award is a clear and intelligible decision, and does not 'speak' of a gross error of the kind indicated above. Courts will proceed on the assumption that the persons giving it have taken all the circumstances into account. To follow any other principle and to expect the arbitrators to write reasoned judgment and bind themselves down to all the rules of evidence and procedure that govern the regular civil proceedings, is to deprive arbitration of the essential elements of substantial justice untrammel ed by the fetters of procedure. We therefore, find no substance in the ground that the umpire has not given his reasoning. It is unnecessary to elaborate this point any further, both, in view of the dictum of the Privy Council in the case already referred to; further, this question has been touched upon and the same principle followed in the ruling reported in Ramsahay v. Harishchandra, 1962 MPC 345 : (AIR 1963 Madh Pra 143).

Ground (iv)-

9. The next heading includes alleged acts of irregularity causing prejudice to the defendants. In this connection it is always to be remembered that an arbitrator unlike a regular Court is not bound by any cast-iron rules of evidence and procedure. On the other hand, it is equally certain that he should act in a fair & reasonable manner giving reasonable opportunity to the parties to represent their cases and deciding the controversy in accordance with what we call, for want of other suitable words, 'principles of natural justice.' When the order itself is not a speaking order. Courts would presume that the arbitrator has not violated any of these principles. Though it would always be open to the parties concerned to show by clear evidence that there has been a serious violation of the basic canons of justice and fairplay, it would be one thing to say that the arbitrator has completely shut out one of the parties and has not permitted it either to file a statement or to examine his witnesses or to support, his case by argument; it is quite another thing to say that he has refused permission to make this or that amendment, or adduce this or that piece of evidence or to emphasise this or that ground in argument. In the former event, there is a violation of the basic principles of fair judging. In the later, the refusal to afford opportunity to amend or to lead a particular piece of evidence is not denial of hearing, but only the denial of a particular detail, at the discretion of the arbitrator. Even when it is a Court, the refusal of permission to amend or to admit a particular piece of evidence does not by itself justify interference by a superiorCourt in revision. The arbitrator's position is even stronger; after all he has got discretion, he has to exercise only in accordance with the broad canons of fair play and natural justice without being bound by other formalities. Nor need he, in refusing to allow an amendment or to give opportunity for a party's bringing this or that piece of evidence, record his reasons. Applying these principles, the entire set of allegations regarding opportunity and amendments made by the defendants are irrelevant at this stage.

10. We do not suggest by the foregoing that the defendants had really a ground for amendment that a regular civil court would have accepted or that a regular civil Court would have given him the opportunities to bring evidence in the manner he really sought to do. The facts set out by the District Judge in his judgment show quite the contrary. But that is not the real point. The real point is that an award having been given after a hearing of both parties generally in accordance with the rules of fairplay and natural justice, this minor grievance., even if genuine, does not become a ground of judicial misconduct on the part of the umpire.

11. Among the grounds raised before the arbitrator there is one on, which the defendants had relied to a considerable extent. In the agreement itself, a separate monthly rental was provided for the railway siding if and when it was opened and was available to the lessee. The lessor was also to make attempts to get the siding provided by the authorities. Ultimately the latter declined to construct it. From this, the defendant lessee urged that the entire lease had been frustrated by the failure of the lessor to get the siding opened. Obviously, the umpire took the position that when the siding was ready, the additional rent specifically mentioned in the agreement would be payable; but there was nothing in the agreement to justify the view that the absence of railway siding would frustrate the lease altogether. This is a decision on the merits of the case on which the award itself is based. It is suggested that this is a question of law, at any rate, a mixed question. Whether it is a question of law or fact, this is not one of law arising directly out of the award or any document made part of it. This was just a controversial issue which it was open to the arbitrator to decide as he considered fair and expedient.

Ground (v)-

12. Two grounds properly of law have been urged. Presumably, they were made before the umpire also; but he was not impressed. They were repeated before the District Judge after the award was received. Certainly, it is conceivable that a lease ab initio against the law of the land may not give rise to a valid award even if the parties agree to arbitration. For example, as an extreme case, a claim for the money losses suffered in gambling cannot be decreed either by a law Court directly or by it after reference to arbitration. Here, it is urged that under the law in force in the erstwhile State of Gwalior, a lease like the present one, of property situated in that State could not be given to a 'foreigner', except with the sanction of the Government and further, the foreign lessee would be liable to be ejected from the leased property.This is contained in Section 62 of the Qanoon Mal, Gwalior, Samvat 1983, and has been set out in extenso in the judgment of the. District Judge. In any view of the matter, the lease itself was given after 1950 when there was no more distinction between the territory of the erstwhile Gwalior State and the rest of India. So, a provision like Section 62 of the said Act was obsolete and inoperative even on the date of the lease.

13. Another point of law altogether of a different nature was canvassed with reference to the Madhya Bharat Zamindari Abolition Act. Under that Act, certain properties held by zamindars vested in the State Government with effect from a specified date. But it had no application either to factories or to lands other than those held or occupied for the purpose connected with agriculture, horticulture, pasture, or animal husbandry. A bone-crushing factory or enclosed appurtenances or land attached to it are not governed by this Act. So, there is no force in this ground either.

Ground (vi)-

14. Finally, attention has been drawn to various formal defects in the manner in which the umpire filed his award. Only one of them was at all of any significance, that being delay in the filing; but it had been condoned, by an order of the Court enlarging the time. Other grounds such as the failure of the umpire to appear in person and file the award or to affix court-fee stamps and the like were hardly worth mentioning.

15. In the result, the appeal is found to be without substance and is dismissed with costs and pleaders fee assessed according to rules, payable by the defendant-appellants to the plaintiff-respondent.

V.R. Newaskar, J.

16. I agree.


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