1. These two are analogous appeals from the order of the Subordinate Judge of Berhampur in M. J. C. Nos. 109 of 1946 and 8 of 1947 setting aside an award made by an arbitrator named Sri T.N. Murthy on 15-9-1946.
2. From 1941 to 1944 one Narasimha Raju took lease of a rice mill belonging to the Maharaja of Parlakimedi by a registered lease deed dated 9-12-1940 (ext. 2) and subsequently admitted several other persons as partners for the management of the mill. The shares of the partners were fixed as follows:
V. Narsimha Raju...5annas.J. Appa Rao...2 1/2'Y. Krishna Murty...2'U. Samba Murty for D. Lakshman Murty...2 1/2'B. Dali Appana...1'K. Ktishna Raju...1'V. Gurumurty Raju...2'
The business of the partners consisted of milling rice and extracting oil from ground-nut. Some of the partners carried on another independent business in which their interests were as follows:
V. Narsimham Raju...5annas.J. Appa Bao...4'Y. Krishna Murty...2 1/2'U. Samba Murty for D. Lakshman Murty...2 1/2'V. Gurumurty Raju...2'
Y. Krishna Murty and U. Samba Murty retired from the partnership business and the other partners continued the same for some time. Thereafter, at the request of Gurumurty Raju the partnership business was closed and the profits were divided. Gurumurty Raju claimed his two annas share of the profits. But one Srirama Murty contested the claim of Gurumurty Raju saying that he was entitled to one anna out of the two annas share of Gurumurty. While the dispute between the two was thus going on, Gurumurty Raju brought a criminal case (C. C. No. 139 of 1943) (ext. 3) in the Court of the Joint Magistrate, Berhampur, on 5-10-1942 against some of the partners including Narasimha Raju and Srirama Murty charging them with offences under Sections 420, 465, 468, 477 read with Sections 120 and 120B, Penal Code.
Processes were in due course issued in that case and the case was fixed for hearing on 30-12-1943. On that date, however, Gurumurty appeared before the trying Magistrate and stated on oath that as his witnesses had turned hostile he would not be able to prove his case (ext. 12). Thereupon, the learned Magistrate discharged all the accused persons under Section 253 (1), Criminal P. C. On the very same date Gurumurty and all the accused persons of that case jointly executed an agreement (ext. 1) for the determination of all their disputes by an arbitrator named Tangadu Narasimha Murty (Sri T. N. Murty). The terms of reference as embodied in that agreement are as follows:
'1. To determine whether the -/2/- share existed in the name of Gurumurty Raju or in the name of Sriram Murty Raju or in the name of both of them in the joint shop business and the contract business of the rice mill of Sri Parlakimedi Samastanam, which we did from 1-2-1941 belonging jointly, to both or not and to determine what proportionate share each has to get.
2. To determine the accounts kept until the date till which the joint business was carried on or was deemed to have been carried on.
3. To determine the profits got for the said -/2/- share in the mill and joint business.
4. Out of the said profits, to get paid by Vyaya-raju Narasimha Raju, separately the profits that have to be paid to Sriram Murty Raju and Gurumurty Raju in the joint business and mill business.
5. To determine who and in what manner are to bear the costs incurred by both parties in C, C. No. 139/43 on the file of Berhampur 2nd Officer's Court, according to justice and injustice.
6. All the account books, papers, etc., which had been seized and now existing in Court have to be taken return of by Vyayaraju Narasimha Raju, and have to be handed over to Tangadu Narasimha Murty Raju, the arbitrator, and to be kept with him.
7. It is requested to give the award by knowing all the matters required to determine all the above matters from the accounts of the said mill and joint business, from the statements of the parties and from the depositions of other witnesses. We have executed this muchilike having agreed to abide by your award without raising any dispute. It is requested by us to give the said award as soon as possible.'
It will be noticed that the main point in controversy was as to whether Gurmurty Raju was entitled to two annas share or as to whether. Sriram Murty had any interest in that two annas share Doubtless, para. five of the terms of reference related to costs incurred by the parties in the said criminal case. The arbitrator then entered upon his reference and after innumerable adjournments took down the statements of Gurumurty Raju and Sriram Murty on 28-6-1944 (exts K and K-1). On the next day (27-6-1944) Narasimha Raju asked for time to adduce his evidence in view of the statements made by Gurumurty Raju and Sriram Murty before the arbitrator on the previous day.
Time was accordingly granted by the arbitrator but on 3-7-1944 Narasimha Raju filed a petition under Sections 5 and 11 of the Arbitration Act before the Subordinate Judge for the removal of the arbitrator on the ground of misconduct. This was registered as M. J. C. No. 34 of 1944 and was eventually dismissed by the Court on 11-2-1946 (ext, 5). During the pendency of that case the arbitration proceedings were stayed; but after the dismissal of the M. J. C. by the Subordinate Judge though Narasimha Raju filed a revision petition (C. R. No. 78 of 1946) before the Patna High Court, no stay order was, however, granted. That revision petition was eventually dismissed for default by the High Court on 26-3-1949.
3. Soon after the dismissal of M. J. C. No. 34/44 the arbitrator resumed his enquiry & gave notice to the parties. Narasimha Raju, however, on 4-5-1946 asked him for an adjournment (ext. G) stating that he intended moving the High Court in revision against the order of the Subordinate Judge dismissing M. J. C. No. 34/44. The arbitrator refused to grant an adjournment and stated that the enquiry would be held on 20-5-1946 at 5 p.m. and that if Narasimha Raju would not care to appear, the enquiry would be completed ex parte. To that, Narasimha Raju sent a reply (ext. F-2) stating that he would not be able to attend that date and that if the arbitrator completed the enquiry ex parte he (Narasimha Raju) would not be bound by the same. The arbitrator, however, completed his enquiry in due course and after giving notice to the parties on 6-9-1946 pronounced his award (ext. E) on 14-9-1946. Then Gurumurty filed an application under Sections 14 and 30, Arbitration Act, for the filing of the award in Court and for passing a decree in terms of the award. This was registered as M. J. C. No. 105 of 1946 in the Court of the subordinate Judge. Narasimha Raju also filed an application under Section 10, Arbitration Act, for setting aside the award. This was numbered as M. J. C. No. 8 of 1947 and both the M. J. Cs. were heard analogously.
4. The main question for consideration is whether the award of the arbitrator should be set aside. The following grounds were urged on behalf of Narasimha Raju :
'(i) The object of the arbitration agreement (ext. 1) was to stifle criminal prosecution and as such was unlawful;
(ii) The award was invalid inasmuch as all the partners in the two business did not join in the arbitration agreement;
(iii) The award was hit by Section 35, Arbitration Act, and was, therefore, invalid;
(iv) The arbitrator went beyond the terms of reference in determining the profits of the firm after the date of the reference (30-12-1943); and
(v) The arbitrator was guilty of misconduct in passing the award without giving fresh written notice to Sriram Murty after the resumption of his enquiry in May, 1946.'
5. The learned lower Court rejected grounds Nos. (i), (ii) and (iv) but accepted grounds Nos. (iii) and (v) and hence set aside the award. Gurumurty Raju filed two appeals (M. A. Nos. 25 and 26 of 1949) in the two M. J. Cs.' Narasimham Raju, however, did not file a cross-objection against the finding of the learned Subordinate Judge as respects grounds Nos. (i), (ii) and (iv). But Sri D.V.N. Rao on his behalf was permitted to support the judgment of the lower Court in respect of those grounds also.
6. I shall first deal with the appeal of Gurumurty Raju.
GROUND NO. (III): Section 35(1), Arbitration Act, says that no reference or award will be invalid by reason only of the commencement of legal proceedings upon the subject-matter of the reference. But when legal proceedings upon the whole of the subject-matter of the reference have been commenced between the parties to the reference and notice has been given to the arbitrator, further proceedings shall be invalid. The learned Subordinate Judge thought that the pendency of the revision petition (C. R. No. 78/46) in the Patna High Court against the order of the Subordinate Judge in M. J. C. No. 34/44 would render all proceedings before the arbitrator invalid. He is clearly in error in taking this view.
As already pointed out, the limited question for consideration in that M. J. C. was the alleged misconduct of the arbitrator. The dispute between the parties which was the subject-matter of the arbitration agreement was not canvassed before the Subordinate Judge in M. J. C. No. 34/44. The revision petition before the High Court was against the order of the Subordinate Judge holding that the arbitrator was not guilty of misconduct. Hence, the subject-matter that was pending before the High Court in the civil revision was whether the arbitrator was guilty of misconduct or not. It had absolutely nothing to do with the subject-matter of the reference.
The learned lower Court realised this difficulty but it observed that if the Hon'ble High Court allowed the revision petition and held that the arbitrator was guilty of misconduct the award would be set aside and therefore it may be held that the whole of the subject-matter of the refernce was pending before the High Court. This argument is clearly untenable. The effect of the decision of the High Court on the award has nothing to do with the question as to whether the subject-matter of the reference was identical with the subject-matter that was pending before the High Court. It is the identity of the two that would attract the operation of Section 35(1), Arbitration Act. That section merely reproduces the principle laid down in -- Doleman & Sons v. Ossett Corporation', 1912-3 KB 257 (A) which has been followed in -- 'Ram Prosad Surajmal v. Mohan Lal Lachminarain', AIR 1921 Cal 770 (B); --'Ghansham Das Gowerdan Das v. Tekchand', AIR 1935 Lah 916 (C) & -- 'Jai Narain Babu Lal, Firm v. Firm Narain Das Jaini Mal', AIR 1922 Lah 389 (D). The position is so obvious that I need not dilate on it.
7. GROUND No. (V): The learned lower Court has observed that after the dismissal of M. J. C. No. 34/44 on 11-2-1946, the arbitrator was bound to give fresh written notice to all the parties and that according to his own admission fresh written notice was not issued to Sriram Murty. It, therefore, held that an award passed without hearing Sriram Murty was highly prejudicial and that consequently the arbitrator was guilty of misconduct. I am unable to accept this reasoning of the learned Subordinate Judge. The only person who can legitimately claim to be prejudiced by failure to give written notice to Sriram Murty is Sriram Murty himself. But that person never bothered to contest the case either before the lower Court or before this Court in appeal. He did not care to examine himself as a witness before the lower Court and to say that he was, in fact, prejudiced by failure to give such notice. The person who has objected on his behalf is Narasimha Raju.
But Narasimha Raju was clearly informed by the arbitrator about the resumption of the proceedings after the termination of M. J. C. No. 34/44. I have already referred to the contents of his reply to the arbitrator (ext. F-2) dated 20-5-1946 to the effect that he would not attend the enquiry as he intended filing a revision petition in the High Court though he was clearly told by the arbitrator (ext. F) that if he would not attend the enquiry on the date fixed (20-5-1946) it would be heard ex parte. Thus Narasimha Raju by his own wilful abstention allowed the enquiry to be continued ex parte and he cannot be permitted to say now that failure to give written notice to Sriram Murty has prejudiced the case of the latter, especially when Sriram Murty himself would not come forward to challenge the award.
8. In this connection, however, it should be noticed that proceedings before arbitrators need not be conducted with such meticulous care as is required in ordinary Civil Courts so long as there is substantial compliance with the principles of natural justice. The actual issue of written notice may not be necessary if it is clear that the parties were informed orally about the resumption of the enquiry after the disposal of M. J. C. No. 34/44. The arbitrator has stated in his evidence that on two occasions after the disposal of that M. J. C. he met Sriram Murty casually near a bus stand and had requested him to produce his. account-books in support of his claim. In fact, Sriram Murty had practically taken no part during the first stage of the arbitration proceedings apart from giving his statement on 26-6-1944 (ext. K-1) objecting to the claim of Gurumurty. He omitted to produce his account-books though he promised to produce them. Under these circumstances, I see no reason to disbelieve the evidence of the arbitrator to the effect that even after the termination of M. J. C. No. 34/44 he told Sriram Murty near a bus stand on two occasions to produce his account-books and that he did not produce the same.
In -- 'Mohendra Nath v. Mohilal Koley', AIR 1918 CaL 523 (E) it was held that verbal notice from an arbitrator to a party would suffice and that written notice was not always necessary. Similarly, in -- 'Ram Chand v. Atma Ram', AIR 1952 Ajmer 6 (1) (F), it was held that the mere absence of formal notice to the parties would not invalidate an award if the arbitrator gave the parties a reasonable opportunity of being heard. Following these decisions I would hold that Sriram Murty was given a reasonable opportunity by the arbitrator of being heard even after the disposal of M. J. C. No. 34/44 and that the latter did not care to avail of it. In fact, his subsequent conduct before the learned Subordinate Judge and also before this Court makes it absolutely clear that he is not interested at all in the present dispute which is essentially one between Gurumurty on the one hand and Narasimha Raju on the other. I would, therefore, set aside the order of the lower Court holding that the arbitrator was guilty of misconduct.
9. I may now deal with the contentions raised by Mr. D.N. Rao on behalf of Narasimha Raju against the findings of the learned Subordinate Judge.
GROUND NO. (I): It was urged that the main consideration for the execution of the arbitration agreement (ext. 1) was the withdrawal of the criminal case (C. C. No. 139/43) & as such the agreement would be invalid as an attempt to stifle criminal prosecution. In support of this argument reliance was placed on the fact that the arbitration agreement and the withdrawal of the criminal case took place on the same date (30-12-1943). Narasimha Raju also led oral evidence to show that it was because Gurumurty agreed to withdraw the criminal case that the parties agreed to refer their dispute to the arbitration and that the arbitration agreement was written prior to the appearance of Gurumurty before the Magistrate stating that he would not like to proceed with the case.
The learned lower Court rightly refused to rely on the testimony of Narasimha Raju and his witnesses on this point. The story about an attempt to stifle criminal prosecution was put forward at a very belated stage. In M. J. C. No. 34/44 which was started at the instance of Narasimha Raju this plea was not taken at all. On the other hand, at that time his only allegation was that the arbitrator was guilty of misconduct. One Appa Rao was examined as a witness on his behalf in that M. J. C. and there he stated (Ext. A) that 'after' Gurumurty had deposed in that criminal case the reference to the arbitration was made. This statement if believed would clearly show that the withdrawal of the criminal case was not a consideration for the arbitration agreement.
Thus his earlier deposition in M. J. C. No. 34/44 clearly contradicts the case now put forward by Narasimha Raju and this witness before the lower Court. Gurumurty has frankly stated that after the lapse of so much time he was not in a position to say whether the talk of reference to the arbitration took place prior to or after the disposal of the criminal case. The dispute between the parties regarding their shares was pending from before and the fact that a criminal case had been instituted by Gurumurty and was pending in the Magistrate's Court might have served as a motive for the parties to agree to get their disputes settled by arbitration.
But to pronounce an arbitration agreement to be invalid as an attempt to stifle criminal prosecution it must be further established that the withdrawal of the criminal case was the consideration for the agreement and not the motive for the same (see -- 'Sukhdeo Dass v. Mangal Chand', AIR 1917 Pat 454 (G). In -- 'Bhowanipur Banking Corporation, Ltd. v. Durgesh Nandini Dasi', AIR 1941 PC 95 (H) also this distinction was pointed out and it was observed :
'The learned Judge is in fact doing nothing more than considering the elements that go to the making of a simple contract, for it is of the essence of the defence that the defendant should establish a contract whereby the proposed or actual prosecutor agrees as part of the consideration received or to be received by him either not to bring or to discontinue criminal proceedings for some alleged offence.
It is of course impossible for such a contract to be made unless both parties know of the proposed or actual proceedings. Vaughan Williams J. inadvertently says 'must be cognisant of the crime'. Proof that there has actually been a crime committed is obviously unnecessary. But it is also of course necessary that each party should understand that the one is making his promise in exchange or part exchange for the promise of the other not to prosecute or continue prosecuting.
In all criminal cases reparation where possible is the duty of the offender, and is to be encouraged. It would be a public mischief if on reparation being made or promised by the offender or his friends or relatives mercy shown by the injured party should be used as a pretext for avoiding the reparation promised. On the other hand to insist on reparation as a consideration for a promise to abandon criminal proceedings is a serious abuse of the right of private prosecution.
The citizen who proposes to vindicate the criminal law must do so wholeheartedly in the interests of justice, and must not seek his own advantage. It only remains to say that such agreements are from their very nature seldom set out on paper. Like many other contracts they have to be inferred from the conduct of the parties after a survey of the whole circumstances.'
10. Mr. D.V.N. Rao, however, invited my attention to Clause 5 of the arbitration agreement in which the arbitrator was requested to apportion the costs between the parties in C. C. No. 139/43 and urged that this clause when construed along with the other circumstances would lead to an inference that the withdrawal of the case was the consideration for the agreement. I am, however, unable to accept this argument. It may be that the parties wanted all their outstanding disputes to be settled by the arbitrator and on 30-12-43 the question of apportionment of costs in the criminal case was one of the questions to be decided. I would, therefore, uphold the finding of the lower Court on this ground.
11. 'Ground No. (ii)'.-- It was urged that all the partners of the two businesses did not join in the arbitration agreement and that consequently the award was illegal. This argument, however, is not available for Narasimha Raju who is a party to the agreement. It was pointed out in --Dwarka Nath v. Kedar Nath', AIR 1951 Pat 445 (I) that it was not necessary that all parties in a suit should concur in an application for an order of reference to an arbitrator. It is only necessary that all parties interested in the subject-matter of the reference should join in the submission. Again in--'Mamraj v. Mt. Kishni', AIR 1951 Simla 183 (J) it was pointed out that parties to a reference cannot challenge the validity of an award on the mere ground that one of the parties to the suit was not a party to the arbitration. It was also pointed out that the award was valid so far as the parties who joined in the reference were concerned.
From the history of the dispute it will be clear that the real contestants are Narasimha Raju on the one hand and Gurumurty Raju on the other. Appa Rao filed a petition in M. J. C. No. 105/46 stating that he was not interested in the dispute and no costs may be awarded against him. He further stated that the dispute was one between Narasimha Raju and Gurumurty Raju. The other partners of the firm had never bothered to appear at any stage of the dispute. The lower Court was, therefore, justified in saying that the arbitration agreement cannot be impugned on the ground that the other partners had not signed it.
12. 'Ground No. (iv).'-- In the award the arbitrator determined the profits till February, 1944. The date of reference to the arbitrator is 30-12-1943. It was urged that the arbitrator had exceeded his jurisdiction in determining the profits up to February, 1944 and that the joint business of the firm should be deemed to have been terminated on the date of the agreement itself (30-12-1943). In support of this argument, clause 2 of the arbitration agreement was translated (from Telugu) by Mr. D.V.N. Rao as follows:
'To determine the accounts kept until the date till which the joint business was carried on or was deemed to have been carried on.'
On the other hand, the translation given by the other side is as follows:
'Up to what date the Samasthanam rice and oil mill business and joint business were joint and to settle accounts till that date.'
It will be noticed that this translation omits any reference to 'deemed to have been carried on'. The Telugu passage in the certified copy of the agreement (ext. 1) is not very clear on the subject. But I do not think that Mr. D. V. N. Rao's contention can be accepted. The business was taken on lease for a period of three years from 1-2-1941 till 1-2-1944. The arbitrator found that the business was actually carried on till that date and therefore held that Gurumurty was entitled to two annas share of the profits. In terms, the arbitration agreement does not terminate the partnership business and the difference that had arisen between the partners would not suffice to show that the partnership business was either actually terminated or shall be deemed to have been terminated on the date of the agreement. I would confirm the finding of the lower Court on this point.
13. Mr. D.V.N. Rao then urged a new point regarding the misconduct of the arbitrator. It was not specifically mentioned in the lower Court; but as there is some evidence in support of the same I have thought it desirable to deal with it also. The arbitrator stated that after the termination of M. J. C. No. 34/44 when he resumed his enquiry in May, 1946 he wrote to two firms (Mutha Appalaswamy and Sons of Tilaru and Ladi Dalap-panna of Kotkapeta) and ascertained from them the market rates of ground-nut, ground-nut oil and ground-nut eake and utilised the information given by them in passing his award. The replies of those two firms to the arbitrator are marked exts. J. and J-1. No person from the firms was examined as a witness before the arbitrator.
Mr. D.V.N. Rao, therefore, contended that the arbitrator had made private enquiries without the knowledge of the parties and that consequently his award was invalid. He relied on -- 'Kanhaiya Lal v. Khairati Lal', AIR 1919 Lah 208 (K). This argument, however, is not fully borne out by the materials on record. As early as 26-6-1944, Gurumurty in his statement before the arbitrator (ext, K) while giving a list of his witnesses, mentioned the names of Mutha Appalaswamy and Sons of Tilaru and Ladi Dalappanna of Kotkapeta and requested the arbitrator to examine them. Narasimha Raju was present at that time and he was fully aware of the fact that tnose two firms were being cited as witnesses by Gurumurty Raju. When the arbitrator resumed his enquiry and gave notice to Narasimha Raju (ext. F) on 10-5-1946 Narasimha Baju in his reply (ext. F-2) refused to attend the enquiry and stated that he would not be bound by the same if it was made ex parte.
It was this persistent refusal on his part to appear before the arbitrator to adduce his evidence that led the arbitrator to complete the enquiry ex parte and obtain the required information from the two firms in question. Doubtless, if Narasimha Kaju had appeared before him and insisted on cross-examining the representatives of the firms and the arbitrator had refused to give him that opportunity, a question of prejudice might arise. But his conduct throughout the arbitration proceedings was one of non-co-operation and he cannot, therefore, urge that the enquiry was made behind his back. In -- 'Nabin Chandra v. Sinclair Murray and Co.', AIR 1914 Cal 818 (L) it was pointed out that a party who though repeatedly written to would not appear before the arbitrator and allowed the proceedings to go ex parte, cannot later on say that he was not given an opportunity of being heard.
14. Mr. D.V.N. Rao then contended that under Clause 7 of the arbitration agreement it was expressly stipulated that the award should be based on the statements of the parties and the depositions of witnesses and that consequently the arbitrator had no jurisdiction to take into consideration the letters (exts. J and J-l) sent by Mutha Appalaswamy and Sons of Tilaru and Ladi Dalappanna of Kotkpeta unless they were examined as witnesses before him. I have already explained the circumstances under which the letters of the two firms were received by the arbitrator. The mere failure to examine the representatives of the firms as witnesses would not be material on the facts of this case inasmuch as Narasimha Raju had declined to appear before the arbitrator though he was aware as early as June, 1944 that Gurumurty had cited the two firms as witnesses on his behalf. At best it may amount to an admission of hearsay evidence.
But it is well known that in proceedings before arbitrators the law of evidence need not be very strictly applied. As pointed out in -- 'Venkata-chellam v. Suryanarayana Murty', AIR 1941 Mad 129 (M) in examining an award passed in arbitration proceedings reasonable latitude must be allowed and the Court would be reluctant to interfere unless some real injustice or substantial divergence from the law can be .proved. Similarly, in -- 'Budh Ram v. Chandu', AIR 1922 Lah 480 (N), it was observed that where parties produced no evidence and the arbitrators made enquiries from the neighbouring parties and passed their award on hearsay and conjecture, such an award could not be set aside. (See also -- 'Martirosi v. Subramaniam Chettiar', AIR 1930 Mad 723 (O)).
15. I am, therefore, of the opinion that the arbitrator is not guilty of misconduct, that the procedure adopted by him was in accordance with the principles of natural justice and that Narasimha Raju by his own conduct deprived himself of the opportunity of being heard.
16. The appeals are, therefore, allowed, the order of the lower Court is set aside and a decree is passed in terms of the award. The appellant is entitled to costs of both the Courts from Narasimha Raju. Only one set of costs is allowed for the two appeals and the two M. J. Cs
17. I agree.