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Karichori Raman Nair Vs. Kodoth Krishnan Nair and anr. - Court Judgment

LegalCrystal Citation
SubjectProperty;Arbitration
CourtKerala High Court
Decided On
Case NumberSecond Appeal No. 1021 of 1972
Judge
Reported inAIR1976Ker22
ActsArbitration Act, 1940 - Sections 32 and 33; Transfer of Property Act, 1882 - Sections 40
AppellantKarichori Raman Nair
RespondentKodoth Krishnan Nair and anr.
Appellant Advocate T.S. Venkiteshwara Iyer,; P.K. Balasubramanyan and; P.E.
Respondent Advocate K. Chandrasekharan,; C. Sankara Menon,; K. Vijayan a
DispositionAppeal allowed
Cases ReferredMadhavan Nair v. Chinna Kunji
Excerpt:
arbitration - pre-emption agreement - sections 32 and 33 of arbitration act, 1940 and section 40 of transfer of property act, 1882 - suit for enforcement of right of pre-emption - plaintiff and defendant co-owners of property - property purchased through auction sale by plaintiff but in absence of sale deed - manner of obtaining property falls within pre-emption agreement to be decided by trial court - matter remitted back to trial court. - - 3, an advocate who is also their relation, as arbitrator to partition the properties which they bad inherited from their rather. a-1 was in any case unenforceable as it bad not been filed and made a rule of court. it cannot also be said that the original cause of action is satisfied by the mere passing oi the award, for without filing it and..........p. w. 3 passed his award ext. a-1 dividing the properties among the sharers and allotting the suit property, among other items, to the first defendant. the parties have accepted the partition and have taken their shares in terms of exhibit a-1. exhibit a-1 which has been registered but has not been filed in court as required by the arbitration act, provides in paragraph 8 for a right of pre-emption in the following terms :'every sharer will have a right of preemption in respect of the properties allowed to the other sharer provided such sharer exercising the rights of pre-emption shall have the property allotted to him under the award contiguous to the property in respect of which such right of pre-emption is claimed by such sharer; provided further that such sharer claiming right.....
Judgment:

G. Balagangadharan Nair, J.

1. Appellant was the second defendant in a suit for enforcement of a right of pre-emption, which has been decreed by the learned Subordinate Judge, Kasargod reversing its dismissal by the learned Munsiff, Kasargod.

2. Plaintiff is the brother of the first defendant. By an agreement (muchalika) Ext. X-1 dated 2-10-1964 they and their two brothers and two sisters appointed P. W. 3, an Advocate who is also their relation, as arbitrator to partition the properties which they bad inherited from their rather. On 2-8-1965 P. W. 3 passed his award Ext. A-1 dividing the properties among the sharers and allotting the suit property, among other items, to the first defendant. The parties have accepted the partition and have taken their shares in terms of Exhibit A-1. Exhibit A-1 which has been registered but has not been filed in Court as required by the Arbitration Act, provides in paragraph 8 for a right of pre-emption in the following terms :

'Every sharer will have a right of preemption in respect of the properties allowed to the other sharer provided such sharer exercising the rights of pre-emption shall have the property allotted to him under the award contiguous to the property in respect of which such right of pre-emption is claimed by such sharer; provided further that such sharer claiming right of pre-emption must be prepared to pay the value of the property prevailing in the market at the tune of sale.'

By Ext. A-2 dated 21-3-1966 tbe first defendant sold the suit property to the second defendant-appellant for Rs. 3,000/-. The adjacent property covered by R. S. Nos. 562/3 and 562/4, which belonged to the sharers was sold, on their agreement and was purchased by the plaintiff, even before the award. Claiming that be was entitled to a pre-emptive right under Ext. A-1, and that the sale deed Ext. A-2 contravenes that right, the plaintiff brought tbe suit for directing the second defendant to surrender the suit property on receipt of Rs. 3,000/-or in the alternative to direct him or the first defendant whoever was liable to execute a transfer deed in favour of the plaintiff.

3. The defendants resisted the suit contending that as the muchalika contained no provision in that regard, tbe reservation of a pre-emption right in Ext. A-1 was beyond the powers of the Arbitrator and that Ext. A-1 was in any case unenforceable as it bad not been filed and made a rule of Court. They also contended that it was with notice to the plaintiff that Ext. A-2 was executed. The second defendant raised a further defence that he had no notice of the pre-emption clause and being a bona fide purchaser for value he should be protected.

4. The trial Court on a former occasion decreed the suit in the plaintiff's favour, directing the second defendant to transfer the property by a sufficient instrument. In the appeal, A. S. No. 19 of 1968, taken by the second defendant the lower appellate Court held that the suit which as framed involved a decision upon the existence, effect and validity of the award Ext. A-1 was not maintainable as it had not been filed in Court and made by the subject of a decision. It however allowed an application made by tbe plaintiff to amend the plaint so as to incorporate a paragraph basing the suit on a pre-emption agreement alleged to have been reached by the parties in the course of the arbitration proceedings, before the award. In view of this amendment, the Court set aside the decision and remanded the suit for fresh trial.

5. The defendants thereupon filed additional written statements denying the pre-award agreement on pre-emption, pleaded by the plaintiff.

6. The trial Court upheld this contention and holding that the agreement was not true dismissed the suit. On appeal taken by the plaintiff the learned appellate Judge came to a contrary conclusion and decided in favour of the plaintiff.

7. It was contended for the appellant in the first place that no suit would fie on the original agreement, even if one existed, for once an award was made, the prior agreements become merged in the award which thenceforward becomes the sole source of the rights and liabilities of the parties. This contention would be sound if the award is valid and enforceable but not if the award is one of which the Court would take no cognizance, not having been made the rule of Court. Section 32, Arbitration Act, provides:

'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.'

8. After a full discussion of the scheme of the Act with particular reference to Sections 14 and 32 and a fairly exhaustive survey of the relevant case law a Full Bench of the Andhra Pradesh High Court in Sait Pamandass Sugnaram v. Manikyam Pillai, AIR 1960 Andh Pra 59 (FB) held:

'....... .It is not open to a defendant to set up an award as a bar to a suit file on the original cause of action, where the award has not been filed and all proceedings relating thereto had not been gone through as required by the Arbitration Act.'

9. The same view has been taken in Mohamed Yusuf Levai Saheb v. Hajee Mohammed Hussain Rowther, AIR 1964 Mad 1 (FB) which follows AIR 1960 Andh Pra 59 (FB), AIR 1951 Mad 458, AIR 1959 Bom 549 and AIR 1953 Pat 42.

10. How, apart from statute, a consensual award supersedes the original cause of action which becomes merged in it. In such a case, the award becomes the source of the rights and obligations of the parties and precludes them from seeking to enforce the original rights. That however would be the position only where the statute does not require the award to be filed in Court, for without being filed and made a rule of Court, the award has an inherent vitality derived from tbe agreement of the parties and such an award, if otherwise valid operates to merge and extinguish all antecedent rights. After the passing of the Arbitration Act, 1940, the position has been basically changed and as pointed out in AIR 1964 Mad 1 at P. 6 (FB):

'It will follow from the above that the principle on which an award was considered effective under the law as it stood prior to 1940, namely, the merger of the original cause of action in the award which furnished a fresh cause of action to the parties, and also of itself operating as equivalent to a judgment has no longer any validity. It cannot also be said that the original cause of action is satisfied by the mere passing oi the award, for without filing it and obtaining a judgment thereon the party cannot enforce it. Secondly an award by an arbitration after the Act is but a stage in a scheme formulated therein for the adjudication of disputes by a private tribunal. The confirmation of the same by a judgment of Court is essential in order to render it an effective adjudication of the dispute. The mere fact that an unfiled award might have to be registered or stamped cannot be decisive oi its effectiveness, as stamping and registration have to be done on account of statutory provisions and not because that it has any force by itself.'

11. Besides repelling the appellant's contention this passage will also establish the inapplicability of Bhajahari Saha v. Beharilal Basak, (1906) ILR 33 Cal 881, relied upon by him, for it arose long before the Arbitration Act and merely laid down the law as it then prevailed. Indeed this is one of the decisions discussed in AIR 1964 Mad 1 (FB) and accepted as laying down the law before the enactment of the Arbitration Act, 1940.

12. Counsel for the appellant also relied upon Firm Gulzarimal Gheesalal v. Firm Rameshchandra Radhyeshyam, AIR 1959 Raj 162. The dispute between the parties in that ease had been referred to an arbitration and the arbitrators had passed an award, making the defendant liable for certain amounts. The defendant not having complied with the award which was never made a rule of court, the plaintiff brought the suit on the original cause of action and alternatively on the award. The trial court held the award to be illegal and it gave the plaintiff a decree on the original cause of action. Both parties appealed. The first appellate court did not enter any rinding on the validity of the award but gave the plaintiff a decree for a larger amount in terms of the award. The defendant took a second appeal to the High Court. A learned single Judge held in the first place that where a dispute culminates in an award, no suit will lie on the original cause of action, which is extinguished and becomes merged in the award. The learned Judge then went into alternative basis of the claim and concluded that when he pleads an award, it is not open to the plaintiff to raise a suit for enforcing the award, and that his only remedy is to file an application under Section 33 and have the award implemented according to the procedure laid down in the Arbitration Act itself. Now this decision, with respect, lays down the two principles correctly--the theory of merger and the ineffectiveness of an award, which has not been made a rule of Court but fails to take note of the interaction of the latter on the former, for as has been held in AIR 1964 Mad 1 (FB), the original cause of action cannot be said to be satisfied by the mere passing of an award when the award has not been filed and made the subject of a judgment. Without a judgment, neither party can enforce the award.

13. Pannalal v. Chiman Parkash, AIR 1947 Lah 54, the only other case quoted by the appellant, decided that a valid award extinguishes all claims submitted for arbitration and furnishes the only basis for the determination of the rights of the parties and that despite the refusal of an application to file it, the award can still be relied upon as a defence in a suit relating to a subject dealt with by it. This decision was concerned with an award long before the Arbitration Act and had no occasion to deal with the effect of the Act on an unfiled award. It does not touch the controversy in this appeal and is therefore inapplicable.

14. With respect, I prefer to follow the Full Bench decisions of the Madras and Andhra Pradesh High Courts rather than the Rajasthan decision, discussed above. The plaintiff cannot be nonsuited on the ground that his suit is based upon the alleged agreement, antecedent to the award, because the award Ext. A-1 which has not been made the subject of a judgment is infructuous and unenforceable and is therefore incapable of extinguishing the earlier rights, if any.

15. The next question that follows in the wake of this finding is whether the agreement of pre-emption alleged to have been reached in the course of the arbitration proceedings is true. On the point the Courts beiow have recorded contrary findings. Ext. A-1 the muchalika is silent on the point and it only appoints P. W. 3 as arbitrator to partition the properties. There is no record available to evidence the alleged agreement of pre-emption and P. W. 3 has said that the diary of the arbitration proceedings which he had kept had been taken by one of the sharers and had not been returned. The question therefore primarily turns on the testimony of P. W. 3. P. W. 3 is a leading lawyer and no suggestion has been made to doubt his veracity or impartiality. Indeed D. W. 1, husband of the first defendant who gave evidence for her, has stated that he and P. W. 3 are on good terms and that they have, full confidence in him-- a statement which compels respect to the evidence of P. W. 3. After explaining the background of the differences which arose among the sharers in the course of the arbitration proceedings, P. W. 3 states that in order to resolve the differences he suggested that a pre-emption clause could be introduced, that the male sharers and the husbands of the female sharers, who were present agreed to that course and that was how paragraph 8 was inserted in Ext. A-1. Now this evidence was given before the plaint was amended, at a time when the existence of a pre-emption agreement before the award had not loomed large in the controversy. The evidence of P. W. 3 is in no manner shaken merely because his statement that this question came up at the last arbitration meeting is contradicted by the evidence to P. W. 2, an younger brother of the plaintiff and the first defendant, that the talk about the pre-emption took place at au earlier meeting and thai the suggestion about the pre-emption was made by the plaintiff. These are inconsequential details which do not affect the credibility of P. W. 3. Nor does the evidence of P. W. 3 stand alone. He is corroborated by the plaintiff (P. W. 1 and P. W. 2 who is also a lawyer and who has not been shown to have any bias against his sister, the first defendant. The very fact that the pre-emption clause finds a place in Ext. A-1 probabilises an antecedent agreement, for without such an agreement P. W. 3 would not have, on his own, introduced it. It is also worthy of mention that all the sharers had accepted Ext. A-l and that the attempt to avoid the pre-emption clause was made only in this suit. I agree with the lower appellate Court in finding -that there was a pre-emption agreement prior to the award, as pleaded by the plaintiff.

16. Even so it was argued for the appellant, that the agreement is not binding on the first defendant as on the evidence ot P. W. 3 itself, she was not present at that meeting but only her husband D. W. 1. P. W. 3 has stated that all the male sharers and the husbands of the female sharers accepted the pre-emption clause, which he suggested, would be introduced in the partition. Now the evidence shows that the husbands were representing their wives who were the sharers and there cannot be any doubt that they were attending the arbitration proceedings not as visitors but taking part in them on behalf of their wives, with authority, express or implied, to bind them. As fot D. W. 1 he had a power of attorney from the first defendant even prior to Ext. A-1 and he was managing her affairs on its strength. What is more he has admitted that the female members were represented by their husbands, that he represented the first defendant in all the meetings, that he did so in order that any action taken would bind her, that after each meeting he even used to tell her what had happened and that she had not objected to any action taken by him or by the arbitrator. The male members were present in person and the female members were represented by their husbands at the meeting where the preemption was decided upon. There cannot be any doubt that it is binding upon the first defendant and that this plea of want of authority on the part of D. W. 1 has been put forward only to suit her defence.

17. It was next contended for the appellant that he could be bound by the preemption agreement, if only he had notice of it. Counsel submitted that the appellant was a bona fide transferee for value without notice of the agreement and his title could not be dislodged by the plaintiff. In Basdeo Rai v. Jhagru Rai, AIR 1924 All 400, it was held by a Division Bench that a contract of pre-emption falls within the secund part of Section 40, Transfer of Property Act and that it can be enforced against all gratuitous transferees and even against transferees for consideration with notice. This view was rested on the basis that although such a contract creates no interest in land, it is entered into by the parties with respect to their property and must fiom its very nature be deemed to be annexed to their ownership within Section 40, Transfer of Property Act. A Bench of the Calcutta High Court in Ram Baran Prasad v. Ram Mohit Hazra, AIR 1961 Cal 152, ruled that except where a contrary intention appears, in contracts of pre-emption, as in other contracts, assignability is the rule, that where there is an assignment the benefit and obligation under the pre-emption agreement would pass to the representatives of the original parlies, including assignees or transferees, subject to the well-known exception that bona fide transferees for value without cotice would not be affected by the obligation. It was further held that the contract is enforceable under Section 27(b) of the Specific Relief Act and Section 40, Transfer of Property Act. This decision was confirmed in Ram Baran Prasad v. Ram Mohit Hazra, (1967) 1 SCWR 533 = (AIR 1967 SC 744). In the course of the judgment, their Lordships observed:

'It is true that the second paragraph of Section 40 of the Transfer of Property Act makes a substantial departure from the English law, for an obligation under a contract which creates no interest in land but which concerns land is made enforceable against an assignee of the land who takes from the promisor either gratuitously or takes for value but with notice.'

Section 40, Transfer of Property Act thus applies to a contract of pre-emption and under the last paragraph of the section, the right or obligation created by such a contract 'may be enforced against a transferee with notice thereof or a gratuitous transferee of the property affected thereby, but not against a transferee for consideration and without notice of the right or obligation not against such property in his hands.'

18. Madhavan Nair v. Chinna Kunji, 1971 Ker LT 159 = (AIR 1972 Ker 17), cited by the respondent has no application as it merely decided that the right of preemption is nob available against a purchaser at Court-auction.

19. The law being what I have explained above, the question assumes importance whether the appellant had notice of the pre-emption agreement. Neither of the Courts below has entered any finding on this question. The learned appellate Judge before whom the point was specifically taken held against the appellant, holding that once the first defendant is a party to the agreement it naturally binds the appellant also and that the appellant is not entitled to the protection of this plea in view of Madhavan Nair v. Chinna Kunji, 1971 Ker LT 159 = (AIR 1972 Ker 17). The former view is unsound and 1971 KLT 159 only decided whether the right of pre-emption could be enforced against a purchaser at a Court sale. Counsel for the respondent contended that despite the absence of any finding, the question admits of any easy answer as Ext. 2 refers to Ext. A-1 and the appellant must therefore be necessarily fixed with knowledge of the pre-emption agreement which is embodied in Ext. A-1. This contention has no force because in view of the amendment of the plaint, relief is sought not on the relevant clause in Ext. A-1 but on the antecedent agreement. What requires investigation is whether the appellant had notice of that agreement. That question is still open.

20. It was lastly contended for the appellant that the suit in any view fails as the pre-emption agreement operates only in respect or the properties allotted to the several sharers at the partition, whereas the property in relation to which the plaintiff claims the right, was purchased by him at an auction held by the arbitrator. Prima facie this contention would appear to be right but counsel for the respondent contended that when the plaintiff purchased the property he was only augmenting his share as a co-owner, as would appear from the absence of any sale deed in his favour by the arbitrator, pursuant to the auction. While recognising that the absence of allotment of this property to the plaintiff in the partition schedules would tell against this argument, counsel submitted that this objection, in this form has not been presented in either of the Courts below. The objection is fundamental and the fact that it has not been raised in the Court below is no ground to discountenance it. It was then suggested for the respondent that the manner or right in which the property was obtained by the plaintiff and whether it would fall within the pre-emption agreement, might be directed to be considered by the Court below. As the point is taken here for the first time, I feel that the course suggested is the best, in order to avoid injustice to the plaintiff, who has won in the Court below.

21. The trial Court will find, after affording parties a chance to give evidence if they so desire, whether the property in relation Eo which the plaintiff claims the preemption, falls within the ambit of the preemption agreement and whether the second defendant is a transferee with notice of the pre-emption agreement. The trial Court will then dispose of the suit in accordance with what has been decided herein.

23. I set aside the judgments and decrees of the Courts below and remand the suit to the trial Court for fresh disposal according to law and in the light of what is stated above. Costs in this appeal will abide by the result of the suit and will be provided for by the trial Court.


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