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The Karnataka Bank Limited, by Its Secretary, P. Ramachandra Rao Vs. Thakur Singaraya and anr. - Court Judgment

LegalCrystal Citation
SubjectCompany;Arbitration
CourtChennai
Decided On
Reported inAIR1944Mad95; (1943)2MLJ489
AppellantThe Karnataka Bank Limited, by Its Secretary, P. Ramachandra Rao
RespondentThakur Singaraya and anr.
Cases ReferredPonnamma v. Kotamma
Excerpt:
.....it could well have said so and reference is made to the provisions of the district municipalities act (madras act v of 1920) section 69, of the city municipal act (madras act iv of 1919), section 81 where it is laid down that a contract not made in accordance with particular requirements shall be void as against the municipality or the city corporation. sections 97 to 123 laid down the procedure governing arbitrations made in accordance with section 96 and those sections, it was pointed out, would govern those references which were made in accordance with section 96. to other arbitrations which were held to be within the power of the companies, the procedure laid down under the code of civil procedure, schedule ii was held to apply and the application made in that case under paragraph.....somayya, j.1. the only question in this appeal is whether under the provisions of the indian companies act, a company can refer any dispute between it and another person to arbitration only in accordance with the provisions of the indian arbitration act.2. the facts that led to this dispute may be briefly stated the appellant is the decree-holder in o.s. no. 63 of 1936 on the file of the subordinate judge's court of south kanara. the lower court dismissed the appellant's application for executing the decree passed in the suit holding that the decree was a nullity and therefore not executable. the decree-holder (appellant) is the karnataka bank, limited. there were disputes between the bank and the respondents and the matter was referred to the arbitration of one k.p. vasudeva rao and the.....
Judgment:

Somayya, J.

1. The only question in this appeal is whether under the provisions of the Indian Companies Act, a company can refer any dispute between it and another person to arbitration only in accordance with the provisions of the Indian Arbitration Act.

2. The facts that led to this dispute may be briefly stated The appellant is the decree-holder in O.S. No. 63 of 1936 on the file of the Subordinate Judge's Court of South Kanara. The lower Court dismissed the appellant's application for executing the decree passed in the suit holding that the decree was a nullity and therefore not executable. The decree-holder (appellant) is the Karnataka Bank, Limited. There were disputes between the bank and the respondents and the matter was referred to the arbitration of one K.P. Vasudeva Rao and the arbitrator decided that the plaintiff should get a sum of Rs. 18,477 from the respondents, The award was put into Court under paragraph 20 of the Second Schedule of the Civil Procedure Code and the prayer was that a decree may be passed in terms of the award. The respondents having raised some objections, the application was regis-tered as a suit, O.S. No. 63 of 1936. The Court repelled the contentions of the respondents and passed a decree in terms of the award and granted costs against the respondents. After the passing of the Madras Agriculturists' Relief Act, an application was filed by the respondents (defendants in the action) for scaling down the decree in accordance with the terms of the Act and they got an order scaling down the debt. Thereafter execution was taken out for a sum of Rs. 18,322-3-1 said to be the amount due under the decree as scaled down. Objection was then taken that the decree was a nullity. The view that prevailed with the lower Court was that a company can refer a matter to arbitration only in accordance with the terms of the Indian Arbitration Act, that under that Act an award passed by the arbitrator was to be filed in the District Court, that the District Court is entitled after hearing the objections of the other party to direct the award to be filed and that the award so filed in the District Court is itself to be executed without any decree being passed. The Sub-Court had no jurisdiction to entertain the application to pass a decree in terms of the award or to pass such a decree. The decree is therefore a nullity.

3. The whole question, therefore, is whether when there are disputes between a registered company and a third party and the parties agree to refer the matter to arbitration, they can do so only in accordance with the Indian Arbitration Act, 1899. No decision of this Court on this question has been brought to our notice. As pointed out by the lower Court, a Full Bench of the Lahore Court decided in. Sitaram Balmukand v. Punjab National Bank I.L.R.(1936) Lah. 722 that Section 152, Clause (1) of the Indian Companies Act did not exclude arbitrations under the Civil Procedure Code and that the provisions of the Indian Companies Act only enabled the parties to refer the matter in accordance with the Indian Arbitration Act. Hence an award passed under the Civil Procedure Code would be valid and could be enforced by a Court though it is not a Court which has the jurisdiction conferred under the Indian Arbitration Act. On the other hand a Bench of two Judges of the Calcutta High Court took the opposite view in Jhirighat Native Tea Co., Ltd. v. Bipul Chandra Gupta I.L.R. 17 Lah. 722 . To the same effect is the decision of the Peshawar Court in Peoples Bank of Nor them India, Ltd. v. Padam Lal Vasu Ram A.I.R. 1938 Pesh. 54. The arguments in support of either view are fully and exhaustively set out in the judgments just referred to. The matter has been fully argued before us by the learned advocates for the appellant and the respondents and after considering the various reasons given in these judgments, we are of opinion that the view taken by the Lahore High Court is right and that we ought to follow it in preference to the other decisions.

4. We shall deal only with certain aspects of the question very briefly. The question turns upon the wording of Section 152, Clauses (1) and (3) of the Indian Companies Act of 1913. They run thus:

(1) A company may by written agreement refer to arbitration, in accordance with the Arbitration Act, an existing or future difference between itself and any other company or person.

5. Omitting Clause (2) which is unnecessary for our purpose, Clause (3) runs as follows:

The provisions of the Arbitration Act, 1899...shall apply to a 11 arbitrations between companies and persons in pursuance of this Act.

6. On one side it is said that the provisions of Section 152, Clause (1) are not mandatory and emphasis is laid on the word 'may.' Another argument in support of this view is that if the Legislature wanted to enact that all agreements to refer disputes to arbitration except under the Arbitration Act shall not be valid, it could well have said so and reference is made to the provisions of the District Municipalities Act (Madras Act V of 1920) Section 69, of the City Municipal Act (Madras Act IV of 1919), Section 81 where it is laid down that a contract not made in accordance with particular requirements shall be void as against the Municipality or the City Corporation. On the other side reliance is placed upon the wording of sub-clause (3) which appeared to the Calcutta Judges to be decisive on this question. The chief point of difference between the two Courts is whether the words ''In pursuance of this Act ' occurring in the last portion of Clause (3) govern the expression ' shall apply ' or the words ' to all arbitrations between companies and persons ' which immediately precede the expression 'in pursuance of this Act.' According to one reading it will mean that the provisions of the Arbitration Act, 1899, shall, in pursuance of this Act, apply to all arbitrations between companies and persons. According to the other view, the provisions of the Arbitration Act shall apply to those arbitrations between companies and persons which are held in pursuance of references made under the Act; that is to say, only to those cases which are referred to arbitration in pursuance of Clause (1). The Calcutta view that the expression ' in pursuance of this Act ' governs the expression ' shall apply ' does not commend itself to us. If that were the intention, it was very easy for the Legislature to have inserted the words ' in pursuance of this Act ' between the words 'shall' and 'apply' or after the words ' shall apply.' The fact that this expression ' in pursuance of this Act ' comes after the words ' shall apply to all arbitrations between companies and persons ' indicates in our view that the provisions of the Arbitration Act were to apply only to those arbitrations made in pursuance of this Act, that is, in pursuance of Clause (1). The fact that the expression is 'in pursuance of this Act ' and not ' in pursuance of Clause (1) ' is not, in our opinion, of much force. Whether it is 'in pursuance of this Act 'or' in pursuance of Clause (1)' or 'in pursuance of this section', the result is, in our opinion, the same. Mitter, J., who was a party to the case referred to above, in a later case in East Bengal Bank, Ltd. v. Jogesh Chandra Banerji I.L.R. (1940) Cal. 237 where in a pending suit to which a company was a party the disputes were referred to arbitration and the arbitration was conducted in accordance with the provisions of Schedule II, Civil Procedure Code, held that the arbitration was in order, and that Section 152 of the Indian-Companies Act did not apply. The earlier case was distinguished on the ground that the preamble of the Indian Arbitration Act itself indicated that the Act would apply only to cases of reference without the intervention of Court.

7. We would also point out that even in Presidency towns apart from the power to refer to arbitration under the provisions of the Indian Arbitration Act, oral references are also permissible and if on an oral reference an award is passed, it is held that it is nevertheless valid. Thus alongside of references under the Arbitration Act, oral references to arbitration are permissible even in Presidency towns--see Ponnamma v. Kotamma : (1932)63MLJ610 . As pointed out by the Allahabad High Court in Ganges Sugar Works, Ltd. v. Nuri Miah I.L.R.(1915) All. 273 before the Companies Act of 1913 was passed, the companies had the power to refer to arbitration. Under the Companies Act of 1882, Section 96, provided

Any company under this Act may from time to time by writing under its common seal agreed to refer

8. The dispute in that case which was between the company and another person was referred by a writing which was not under the common seal of the company. The question was whether such a reference was valid. After referring to the corresponding provisions of the English Companies Act, 25 and 26 Vict., Ch. 89, the learned Judges held that the reference which was not by a writing under the seal of the company was not illegal and that it was a contract which can be given effect to in the ordinary way. Sections 97 to 123 laid down the procedure governing arbitrations made in accordance with Section 96 and those sections, it was pointed out, would govern those references which were made in accordance with Section 96. To other arbitrations which were held to be within the power of the companies, the procedure laid down under the Code of Civil Procedure, Schedule II was held to apply and the application made in that case under paragraph II, Rule 17 of the Second Schedule of the Code of Civil Procedure to file the contract as a submission to arbitration was held good. A registered company has undoubtedly a power to refer a dispute to arbitration. That is incidental to the carrying on of the business just as it is in the case of an ordinary individual. The Indian Companies Act does not contain any express provision conferring upon a company power to enteir into a contract. That is presumably assumed to exist as it is necessary for the carrying on of the objects of the company. If a company has power to refer a dispute to arbitration, that power is not taken away by the provisions of Section 152. As pointed out already persons living in the Presidency towns had the power of submitting their disputes to arbitration by oral references. The Indian Arbitration Act provides for written agreements to refer the matter for arbitration. The point was whether a reference can be made only in accordance with the provisions of the Arbitration Act. It was pointed out in Ponnamma v. Kotamma : (1932)63MLJ610 that the power to refer a matter by an oral reference was not taken away by the provisions of the Arbitration Act. Unless, therefore, we find an express provision that references in certain cases shall be only in accordance with the Arbitration Act, we cannot say that the power to refer a dispute otherwise than in accordance with the Arbitration Act is taken away. The fact that a power is given to refer a matter by an agreement in writing in accordance with the provisions of the Arbitration Act does not take away the power to refer the matter otherwise than in accordance with the Indian Arbitration Act.

9. The wording of Clause (1), in our opinion, indicates the correctness of the Lahore view. It will be noticed that all references to arbitration in accordance with the Arbitration Act require to be by a written agreement. The wording of Clause (1) of Section 152, ' may by written agreement refer to arbitration in accordance with the Arbitration Act ' indicates that the written agreement itself must indicate that future references to arbitration should be in accordance with the Arbitration Act. The words ' by written agreement 'would otherwise be superfluous in Section 152, Clause (1). Even if the words 'by written agreement' had been omitted and if the section had run thus:

A company may refer to arbitration in accordance with the Arbitration Act, 1940, an existing or future difference between itself and any other company or person.

10. a written agreement would have been necessary as references under the Arbitration Act should be by a written agreement. Therefore, the expression ' may by written agreement refer to arbitration in accordance with the Arbitration Act, 1940, means, in our opinion, that if a company wishes to refer to arbitration in accordance with the Arbitration Act it can do so by written agreement; and this carries with it the implication that references to arbitration in accordance with Schedule II of the Civil Procedure Code are still open to a company if it does not wish to avail itself of the provisions of the Indian Arbitration Act. The above expression also shows that the written agreement itself should state that future references should be in accordance with the provisions of the Arbitration Act. In this view, the reference and the award are both perfectly valid and the decree of the Subordinate Judge was not a nullity.

11. The order of the lower Court is set aside and the execution petition remanded for disposal according to law. The appellant will have its costs of this appeal from the respondents.


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