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Jaykumar JaIn and ors. Vs. Om Prakash and anr. - Court Judgment

LegalCrystal Citation
SubjectArbitration;Contract
CourtMadhya Pradesh High Court
Decided On
Case NumberMisc. (First) Appeal No. 112 of 1968
Judge
Reported inAIR1970MP119; 1969MPLJ931
ActsArbitration Act, 1940 - Sections 13, 16, 17, 30, 39 and 39(1); ;Contract Act, 1872 - Sections 74
AppellantJaykumar JaIn and ors.
RespondentOm Prakash and anr.
Appellant AdvocateB.L. Seth, Adv.
Respondent AdvocateP.R. Naolekar, Adv. (for No. 1) and ;N.K. Patel, Adv. (for No. 2)
DispositionAppeal allowed
Cases Referred and Firm Madanlal Roshanlal v. Hukumchand Mills
Excerpt:
.....of the arbitrator that there was such a liability on his finding that they had committed a breach of the contract, was clearly an error apparent on the face of the award, and this alone was a ground for setting aside the award or for remitting it to the arbitrator. 9. the essential characteristics of earnest money are well known. it is forfeited when the transaction falls through, by reason of the fault or failure of the vendee. hukumchand mills, (1967) 1 scr 105= (air 1967 sc 1030), for the submission that, when the parties have chosen their own arbitrator to be the judge in the disputes between them, they must accept the award as final for good or bad, and a mere error in decision on the part of the arbitrator or his failure to give reasons for his decision is no ground for..........concerned a composite order. it is also urged that the decree not being in conformity with the award, an appeal lay under section 17 of the arbitration act; and, that the order refusing to set aside the award had merged in the decree and since there was no appeal filed against the decree, the appeal against the order refusing to set aside the award under section 30 was not appealable under section 39(1)(vi) of the act. these contentions are wholly unfounded and cannot be accepted.5. after the privy council decision in ghulam jilani v. mohd. hussain, (1902) ilr 29 cal 167 (pc), it can no longer be contended that an appeal lies against a decree in accordance with the award. in delivering their lordships' judgment, lord macnaghten stated:'they would be doing violence to the plain.....
Judgment:

A.P. Sen, J.

1. This Is an appeal by the plaintiffs from a decision of the IV Additional District Judge, Jabalpur, dated 16th February 1968, arising out of proceedings instituted by them under Section 30 of the Arbitration Act, for the setting aside of an award.

2. The relevant facts leading to the appeal are these. By an agreement dated 31st March 1965, the plaintiffs had covenanted to purchase from the defendant, his five storeyed building which was under construction at Napier Town, Jabalpur, for a sum of Rs. 1,55,103/- and in pursuance thereof, paid Rs. 10,101/-as part of the price. It stipulated that the defendant was to execute a sale deed within 4 months from the date of agreement, during which he was also to complete the construction work then in progress, e.g., installation of electricity for pumping of water to the upper floors, affixing of fittings and fixtures, distempering of walls and polishing of floors, etc. The transaction of sale was, however, never completed and disputes arose between the parties, each complaining of the other of breach while signifying his own willingness to fulfil his part of the contract. Eventually, the parties appear to have abandoned the contract, and having done so, referred their dispute to the sole arbitration of one Seth Ramkumar, by their agreement in writing dated 31st July 1965. The reference to arbitration required the arbitrator to determine two questions: firstly, which of the parties had committed a breach of the contract, and, secondly, what were the damages payable to the injured party by the party responsible for the breach.

3. By an award dated 30th November 1965, the arbitrator found the plaintiffs to be guilty of the breach complained of and has accordingly directed the forfeiture of the amount of Rs. 10,101/- paid by them, treating the same as earnest money. The arbitrator, however, directed that if the plaintiffs were so inclined, they could still have a conveyance of the property, on payment by them of the balance amount of Rs. 1,45,000/- within 2 months of the date of his award. The plaintiffs apparently did not want any specific performance of the contract and only wanted their money back and, therefore, applied for setting aside of the award under Section 30 of the Arbitration Act. The learned Judge has only set aside that part of the award by which the arbitrator had provided for a completion of the sale, upon payment of the balance of the price, on the ground that such a direction was beyond the terms of reference and hence Illegal. As to the rest, he was of the view that the award of the arbitrator holding that the plaintiffs were in breach and, therefore, the amount of Rs. 10,101/-deposited by them was liable to be forfeited, was binding on the parties and could not be set aside for the reason that there were no grounds made out for its being set aside under Section 30 of the Arbitration Act.

4. The respondent has raised a preliminary objection as regards the maintainability of the appeal. The argument of Shri P.R. Naolekar, learned counsel proceeds on these lines. It is argued that there were two separate orders--one refusing to set aside the award, and the other making it a rule of the Court and, therefore, appeals should have been filed against both the orders. The decisions in Shivramprasad v. Gokulprasad Parmeshwardayal, ILR (1958) Madh Pra 570 = (AIR 1959 Madh Pra 102) and Beniprasad Dixit v. Krishna Murari, F.A. No. 121 of 1957, D/- 11-10-1960 (Madh Pra) are said to be distinguishable because they concerned a composite order. It is also urged that the decree not being in conformity with the award, an appeal lay under Section 17 of the Arbitration Act; and, that the order refusing to set aside the award had merged in the decree and since there was no appeal filed against the decree, the appeal against the order refusing to set aside the award under Section 30 was not appealable under Section 39(1)(vi) of the Act. These contentions are wholly unfounded and cannot be accepted.

5. After the Privy Council decision In Ghulam Jilani v. Mohd. Hussain, (1902) ILR 29 Cal 167 (PC), it can no longer be contended that an appeal lies against a decree in accordance with the award. In delivering their Lordships' judgment, Lord Macnaghten stated:

'They would be doing violence to the plain language of the Section and the obvious intention of the Code, if they were to hold that an appeal lies from a decree pronounced tinder it, except in so far as the decree may be in excess or not in accordance with the award.'

All the Courts in India apart from the Calcutta High Court have uniformly taken the view that no appeal is competent against a decree based even on an invalid award. This follows from the language of Section 17 which admits of no other construction. The principle is so well settled that we feel that no elaborate discussion on our part is needed. Suffice it to say that in so far as this Court is concerned, the settled view is that in the case of a composite order, by which a Court refuses to set aside an award and also passes a decree in accordance with its terms, the order refusing to set aside the award and the decree are both appealable as the provisions contained in Sections 17 and 39 are not mutually exclusive. Therefore, the fact that a decree has been passed does not preclude an appeal against the order refusing to set aside the award. If the order is set aside, the decree which is founded on it would lapse and consequently it cannot operate as a bar to the appeal against the order (See, Keshavlal Ramdayal v. Laxmanrao, ILR (1940) Nag 659=(AIR 1940 Nag 386); Jayantilal v. Surendra. AIR 1956 Nag 245 and ILR (1958) Madh Pra 570= (AIR 1959 Madh Pra 102). A fortiori the making of two separate orders does not, in our opinion, take away the right of appeal given under Section 39(1)(vi) to a person aggrieved by an order setting aside or refusing to set aside an award.

6. We fail to appreciate the necessity for the plaintiffs to have filed an appeal against the decree under Section 17 of the Arbitration Act. It is true that the decree in so far as it struck down that part of the award allowing them a right of a specific performance was not in conformity with the award. But the plaintiffs are not aggrieved thereby, for that direction was for their benefit. They have not availed of that direction because they do not want to specifically enforce their rights under the contract. Their grievance only lies against the order which refuses to set aside the award in so far as it directs a forfeiture of the amount of Rs. 10,101/- deposited by them. Now, the scope of an appeal under Section 17 of the Act is restricted by the terms of the section. If the plaintiffs were to file an appeal against the decree, their attack on the judgment and decree would necessarily be confined to the question whether it was in excess or not in accordance with the award F.A. No. 121 of 1957, D/-11-10-1960 (Madh Pra). In that case this Court ruled that where there are two distinct orders, as here, independent of each other, the appellant would be precluded from challenging the order refusing to set aside the award unless he filed an appeal under Section 39(1)(vi) of the Act. That being so, the appeal against the impugned order is competent even though it was followed by a decree and the preliminary objection must, therefore, stand rejected.

7. We are inclined to think that the learned Judge has perhaps erred in not setting aside the award which was bad on the face of it. The arbitrator had made an award from which it is quite clear that he based his decision entirely upon the use of the term 'byana' in the agreement of reference. The parties had not by that agreement, referred to the arbitrator any dispute as regards the nature of the deposit of Rs. 10,101/- for adjudication. Nor had they empowered him to determine whether the said amount was liable to be forfeited in the event the plaintiffs were found to have committed a breach. In directing a forfeiture of the amount, the arbitrator has clearly acted beyond the terms of reference.

8. Apart from this, the decision of the arbitrator that the payment of Rs. 10,101/-was by way of earnest money cannot be supported on the terms of the contract of sale. The relevant condition is contained in Clause 4 thereof, which reads:

'4. Consideration for the sale agreed upon i.e., Rs. 1,55,101/-. Out of this consideration, the vendor has received this day the sum of Rs. 10,101/-. This is by way of part price. The balance of the price Rs. 1,45,000/- will be payable on the date of execution of the sale deed be-fore the Sub-Registrar.'

There was no stipulation anywhere in the contract that due to a nonfulfilment by the plaintiffs of their part of the contract, the amount of Rs. 10,101/- would be liable to be forfeited. The assumption of the arbitrator that there was such a liability on his finding that they had committed a breach of the contract, was clearly an error apparent on the face of the award, and this alone was a ground for setting aside the award or for remitting it to the arbitrator.

9. The essential characteristics of earnest money are well known. Earnest money, although taken as part payment of the consideration, is also a guarantee for the due performance of the contract. As their Lordships of the Privy Council had stated in Chiranjit Singh v. Har Swarup: AIR 1926 PC 1--

'Earnest money is part of the purchase price when the transaction goes forward. It is forfeited when the transaction falls through, by reason of the fault or failure of the vendee.'

In view of this, it is unnecessary for us to deal with this any further. So far as this Court is concerned, the view has throughout been that there is a distinction between earnest money and part of the purchase price (See, Ballabhdas v. Paikaji, 12 Nag LR 177= (AIR 1916 Nag 104); Abbas All v. Kodhusao, 24 Nag LR 189= (AIR 1929 Nag 30 (2)) (FB); Balchandra v. Mahadeo, ILR (1947) Nag 60= (AIR 1947 Nag 193) and Chunnilal v. Mohanlal, AIR 1964 Madh Pra 126). The decision of their Lordships of the Supreme Court in Fateh Chand v. Balkishan Dass, AIR 1963 SC 1405 does not lay down any different principle.

10. The learned counsel for the respondent argued before us that it was for the arbitrator to determine which party was in breach, and once he came to the conclusion that the plaintiffs had committed a breach of the contract, it was open to him to direct a forfeiture of the amount of Rs. 10,101/- deposited by them towards fulfilment of the contract, a sum which both the parties had not only in the agreement for reference but in all their statements subsequently filed, throughout referred to as 'byana'. In other words, the contention is that it had been accepted by the parties that it was so, and the award cannot be upset because the arbitrator has merely directed what, according to the learned counsel, was only a legal consequence that arose from the plaintiffs' breach of the contract. Reliance is placed upon Rustomji v. Manmal, 1963 MPLJ 284 = (AIR 1964 Madh Pra 15); Smt. Santa Sila Devi v. Dhirendra Nath Sen, (1964) 3 SCR 410= (AIR 1963 SC 1677); Jivarajbhai v. Chintamanrao, (1964) 5 SCR 480 = (AIR 1965 SC 214); Radha Wallabh v. Gopaldas, 1965 MP LJ 4923 Bungo Steel Furniture v. Union of India, (1967) 1 SCR 633= (AIR 1967 SC 378) and Firm Madanlal Roshanlal v. Hukumchand Mills, (1967) 1 SCR 105= (AIR 1967 SC 1030), for the submission that, when the parties have chosen their own arbitrator to be the judge in the disputes between them, they must accept the award as final for good or bad, and a mere error in decision on the part of the arbitrator or his failure to give reasons for his decision is no ground for setting it aside. The presumption is, that the arbitrator intended to dispose finally all the matters in difference; and the award should be held final, as it is by intendment made to be so.

11. There can hardly be any quarrel with these principles which are firmly established, but there is difficulty in applying them to the facts of the present case. The question whether the deposit of Rs. 10,101/- was a part of the price or was in reality by way of earnest money depends upon the proper construction of the contract and not as to how the parties may have subsequently chosen to describe it. Their intention had to be gathered from the relevant term in regard to it, and not on their subsequent conduct. Having regard to Clause 4 of the contract, the deposit of Rs. 10,101/- made by the plaintiffs was nothing but a part of the price. Nor had they intended that the amount was liable to be forfeited, in the event of a breach, as a penalty. We are aware that parties not infrequently assess the damages at which they rate a breach of contract by one or both of them, and introduce their assessment into the terms of the contract. In this particular case, the parties had originally inserted a clause for payment of Rs. 10,101/- as liquidated damages by the party in breach, but that clause was struck out at the time of execution of the contract. Instead, the following clause now finds embodied therein:--

'7. Both parties will pay the damage to each other if they fail to fulfil the Conditions.'

The term was nothing but a provision for payment of damages to the injured party for the loss that he suffers on account of a breach of contract, which arise 'naturally, according to the usual course for things', from the breach. What were the reasonable damages resulting from the breach of the contract had, nevertheless, to be ascertained and determined by the arbitrator and this he has failed to decide. We would agree with the learned counsel that if the arbitrator had stated that Rs. 10,101/- were, in his view, the amount of damages payable by the plaintiffs, the entire controversy would have rested with such adjudication, on the authorities relied upon by him, and the Court in that event would not have any jurisdiction to interfere with the award. But, unfortunately for the defendant, that is not the case here.

12. The Court has a general discretion to remit an award for the reconsideration of the arbitrator. This discretion is in general exercisable upon substantially the same grounds as will justify the setting aside of an award (Russel on Arbitration, 17th Ed., p. 308). Looking to the facts of this particular case, we do not think it either just or proper to make any such direction. The learned counsel for the appellants fears that the arbitrator might be prejudiced against the plaintiffs applying for remission and that no useful purpose would be served in remitting the award to him when there is only one conclusion to which he could come, namely, that they were in breach. That being so, it would be more proper that the award should be set aside. Clearly there is no point in remitting the award when one of the parties is apprehensive that the arbitrator might not approach the question with a fresh mind.

13. In Russel on Arbitration, 17th Ed., p. 311, after stating that in exercising its discretion as to whether to set aside or remit an award, the Court should have regard to the circumstances of the particular case, it is observed that where the arbitrator might be prejudiced against the party applying for remission, the discretion to setting aside should in preference be to remit it In illustrating the point the learned author relics upon the dictum of Romilly, M.R. in Re Tidswell, (1863) 33 Beay 213 to the following effect:

'The objection is, in my opinion, one which would make it inexpedient to remit the award; because, notwithstanding the perfect honesty and bona fides of an arbitrator, it is impossible, where an award has been set aside and sent back upon such grounds, that there should not be, in spite of himself, some disposition to favour one side and a disposition to make it appear that the objections to the award were useless and that the sending it back was productive of no good.'

We would on this principle, think it advisable to set aside the award as a whole rather than remit it inasmuch as, in our view, the bad portion of the award is inseverable from the rest of it. In the circumstances, the award which is bad in toto must be avoided altogether and we, accordingly, set it aside, leaving the parties to their own remedy by way of suit.

14. For all these reasons, the appeal succeeds and is allowed with costs. The order passed by the learned Judge, dismissing the application under Section 30 of the Arbitration Act, is set aside and instead, the same is allowed, setting aside the award of the arbitrator dated 30th November 1965. Counsel's fee as per Schedule or Certificate, whichever is less.


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