1. This appeal is directed against an order made by Mr. Justice Greaves for cancellation of an award made by arbitrators.
2. The subject matter of the litigation is alleged to be the estate left by one Hardatrai Chamria whose name appears in the following genealogical table:
Gorakhram Hardatrai Chamria
| M. Annardevi
| | | | |
Rampratap Amlockchand Durgaprasad Radhakissen Motilal
Ptff. M. Surji |
3. On the 12th January, 1922, Rampratap instituted a suit against his cousins Durgaprasad, Radhakissen and Motilal; as also against his sister-in-law Surji and his nephew Keshabdeo. The allegations in the plaint may be briefly summarised. Nandaram left two sons Gorakbram and Hardatrai. The former died in 1914 leaving the plaintiff as his surviving son, and Surji, his daughter-in-law, the widow of Arnlokchand who had predeceased him in 1911. Hardatrai, the brother of Gorakhram, took Durgaprasad in adoption, and thereafter two sons were born to him, namely, Radhakissen and Motilal. Though Hardatrai started a business by his own exertions; Rampratap and Amlokchand were taken as partners therein : their shares varied from time to time, and after the death of Amlokchand, Hardatrai had 11 annas share and Rampratap 5 annas share. An indenture was executed on the 1st October, 1916, between Hardatrai and Rampratap in respect of the business; but as Surji expressed a desire to take Motilal in adoption, Hardatrai, with the consent of Rampratap, set apart 2 annas out of his 11 annas share for the benefit of Motilal. On the 16th November, 1916, two documents appear to have been executed, one an agreement for management of the firm of Hardatrai Chamria & Co., the other an agreement by Way of family settlement to regulate the rights of the parties. It is stated that Surji adopted not Motilal but Keshabdeo. In these circumstances, the suit was instituted on the 12th January, 1922 by Rampratap against the other members of the family. On the 11th May, 1922, a document was executed by Annardeyi (the widow of Hardatrai), Rampratap, Durgaprasad, Radhakissen, Motilal and Keshabdeo (through Surji). Arbitrators were appointed for the settlement of all matters in dispute amongst the parties; it was agreed that in respect of the suit the necessary parties should apply to the Court in accordance with the directions of the arbitrators, whose decisions would be binding on them. On the 23rd May, 1922, an order was made on the petition of the parties to the suit, and the matters in difference in the litigation between the parties thereto were referred to the arbitrators named in the agreement in terms thereof; the Court certified that the order made was for the benefit of the infant Keshabdeo. The arbitrators held their sittings on the 24th, 26th and 27th May, 1922, and made their award on the last named day. The award was sent to the Registrar on the 31st May 5 but it was not till the 4th July that the award was filed both in the suit and under the Indian Arbitration Act. Mr. Justice Greaves has analysed the provisions of the award which need not be set out except in bare outline for our present purpose; but it must be stated at the outset that the award deals with matters outside the suit and concerns one person at least who was not a party to the suit. The award recites that the arbitrators had arrived at decisions on the basic points of dispute and desire to make an award so as to enable the parties to adjust accounts and effect divisions of their properties.
4. Clause 1 provides that each party will bear his or her costs of the suit. Clause 2 provides that the two agreements of the 16th November 1916, are valid. Clause 3 provides that Rampratap and Amlokchand were not joint, but separate in estate, and entitled to 5 annas and 2 annas respectively as entered in the books of Hardatrai Chamria, and that Rampratap and Amlokchand's branch was respectively entitled thereto up to the 31stDecember, 1916, and that with effect from the 1st January, 1917, the shares were as stated in the memorandum of the terms of arrangement between the members of the firm of Hardatrai Chamria & Co., dated the 16th November, 1916. Clause 4 provides that the adoption of Keshabdeo by Mt. Surji was valid and that she, as stated in the deed of adoption, would be entitled to spend Rs. 2,00,000 in charity. Clause 5 deals with land at Fatehpur and does not concern the partnership with which the suit deals. Clause 6 deals with shares in joint stock companies and does not concern the partnership. Clause 7 directs that Keshabdeo's estate will be placed under the control and management of Durgaprasad, Rampratap and Badridas Goenka and applies to his interest in the partnership and to his other property outside the suit. Clause 8 does not concern the rest but contains a provision for Surji during her life which is ultimately to belong to Keshabdeo. Clause 9 specifically deals with the firm of Rai Hardatrai Chamria Bahadur & Co, and concerns the partnership and the suit. The clause provides for the dissolution of the partnership with effect from the 30th June, 1922 which is said to be beyond the powers of the arbitrators, as the dissolution must date from the institution of the suit, namely, the 12th January, 1922 : the clause also provides that as from the 1st July the firm is to be conducted on certain lines, the partners depositing with the firm all cash withdrawn by them from the old firm, and their shares are defined. This is said to be beyond the powers of the arbitrators as constituting a new partnership for the partners. Clause 10 does not concern the partnership. Clause 11 calls for no comment. Clauses 12, 13 and 14 do not concern the partnership. Clause 15 provides for the accounts of the partnership being made up by three persons therein named. Clause 16 refers to in matters outside the partnership and therefore outside the suit.
5. It is thus abundantly clear that the award not only deals with matters outside the suit but is also in excess of the authority of the arbitrators in respect of matters included within the scope of the suit, such as, fixing the date of dissolution and making a new partnership between the parties. In these circumstances, Mr. Justice Greaves has set aside the award in so far as it purports to deal with the matters not covered by the suit. We have been pressed to hold that this order cannot be supported.
6. The statutory law of arbitration in this country is embodied in the Indian Arbitration Act, 1899, and in the second schedule to the Code of Civil Procedure, 1908, which reproduces with modifications the contents of previous Codes. The provisions of the Code of Civil Procedure, were analysed by Lord Macnaghten in Ghulam Jelani v. Md. Hassan  29 Cal. 167 (P.C.). The schedule is divided into three sections, (a) arbitration in suits, (b) reference on agreement to refer, and (c) arbitration without the intervention of a Court; as Lord Macnaghten puts it, the Code deals with arbitrations under three heads:
1. Where the parties to a litigation desire to refer to arbitration any matter in difference between them in the suit. In that case all proceedings from first to last are under the supervision of the Court.
2. Where parties without having recourse to litigation agree to refer their differences to arbitration, and it is desired that the agreement of reference should have the sanction of the Court. In that case all further proceedings are under the supervision of the Court.
(3) Where the agreement of reference is made and the arbitration itself takes place without the intervention of the Court, and the assistance of the Court is only sought in order to give effect to the award.
7. Full directions are to be found in the Code as to the course of procedure in cases falling under head No. 1 and large powers are given to the Court with the view of making the award in such cases complete, operative and final. The Court makes an Order of Reference on the agreement (which must be the agreement of all parties to the suit), being brought before it, and fixes a time for the delivery of the award with power to enlarge the time, if necessary. When the award is submitted to the Court, the Court may in certain specified cases correct or modify it, subject to a right of appeal. In certain specified cases, it may remit the matter to the arbitrators or to the umpire, as the case may be. No award is to be set aside except in one of three cases specified and defined.
8. In cases falling under heads 2 and 3, the provisions relating to cases under head 1 are to be observed, so far as applicable. But there is this difference, which does not seem to have been always kept in view in judicial decisions. In cases falling under head 1, the agreement to refer and the application to the Court founded upon it, must have the concurrence of all parties concerned and the actual reference is the order of the Court, so that no question can arise as to the regularity of the proceedings up to that point. In cases falling under heads 2 and 3, proceedings described as a suit and registered as such must be taken in order to bring the matter - the agreement to refer or the award, as the case may be - under the cognisance of the Court. That is or may be a litigious proceeding -cause may be shown against the application-and it would seem that the order made thereon is a decree within the meaning of that expression as defined in the Civil Procedure Code.
9. The Indian-Arbitration Acton the other hand, relates exclusively to arbitration by agreement without the intervention of a Court of Justice, and, subject to the provisions of Section 23, applies only in cases where, if the subject-matter submitted to arbitration were the subject of a suit, the suit could, whether with leave or otherwise, be instituted in a Presidency Town. We need not analyse here the detailed provisions of the statute, defining the duties and functions of the arbitrator, as also the powers of the Court to remove the arbitrator, to stay proceedings, to remit or set aside the award and to enforce the award as a decree. The High Court is further empowered to frame rules to regulate all proceedings in Court in accordance with the provision of the statute.
10. An examination of the provisions of the second schedule of the Code of Civil Procedure and of the Indian Arbitration Act thus loaves no room for controversy that the legislature has made clear and distinct provisions to regulate the procedure in respect of each of the four types of arbitration which have special characteristic features. The jurisdiction thus created in respect of each type of arbitration must be exercised through the machinery provided and in conformity with the procedure prescribed. The legislature never contemplated a confusion of these jurisdictions. No provision can be traced for simultaneous arbitration, by private agreement and on reference by Court, in respect of subject-matters within and beyond the scope of a suit and amongst persons, some parties and some strangers to a litigation. What has happened in the case before us is, in essence, an arbitration in a manner neither known to nor contemplated by the law, and the Court must consequently decline to affix the stamp of its authority on the product of the labour of the arbitrators. From this standpoint, the award must be treated as invalid, and we are not called upon to consider the applicability of the principle indicated in Darlington Wagon Co. v. Harding Steam Boat Co.  1 Q.B. 245 and Muhammad Newaz Khan v. Alam Khan  18 Cal. 414 (P.C.) explained in Bhajahari v. Beharylal  33 Cal. 881 which recognise latent vitality in an arbitration award made with jurisdiction, even though it has not been enforced by a regular suit or by summary procedure. If we test the award from the point of view of the provisions of the Civil Procedure Code, the arbitrators have plainly dealt with matters not covered by the submission and beyond the scope of the suit. The effect of a reference by the suit may be accurately described in the words of Lord Brougham in Baillie v. Edinburgh Oil Gas Light Co.  3 Cl. & F. 639 : 'The judicial reference is an act of the Court and does not take the cause out of the Court : the Court still retains control over it, but the mode of enquiry and the manner of trial alone is changed by the reference, and the forum of the arbitrator is, in this restricted sense and subject to the control of the Court, substituted for enquiry by the Court itself.' The arbitrators on such a reference or consequently limited to questions in dispute between the parties in the cause referred, and they are not competent to mix up, in their investigation and determination, other controversies wherein strangers to the suit are interested. When an award has resulted from proceedings so carried onina manner not contemplated by the law, the Court cannot be called upon to invoke the aid of the doctrine of separability which was recognised by the House of Lords in Johnston v. Cheape  5 Dow. 247 and Calidonian Ry. Co. v. Lockhart  3 Macq. H.L. 808 and by the Judicial Committee in Boota v. Municipal Committee of Lahore  29 Cal. 854 (P.C.) and Amir Begum v. Badar-ud-din A.I.R. 1914 P.C. 105. Nor can any useful analogy be drawn from the principle recognised by the Judicial Committee in Hemanta Kumari v. Midnapur Zemindary Co. A.I.R. 1919 P.C. 79, namely, that a compromise may be recorded by the Court, even though the compromise includes matters not in controversy in the suit and the decree is limited to the subject of the litigation. In my opinion what has happened in the case before us has so radically affected the proceedings and vitiated its legality that the Court will not exercise the discretion vested in it either to modify the award under Clause 12 or remit the award under Clause 14 of the second schedule of the Code; Hari Singh Nehal Chand v. Kankinarah Co.  34 C.L.J. 39. This is not a case where the arbitrators have failed to act with regularity from lack of care or knowledge : the proceedings have been deliberately organised and carried on by the parties in a manner not contemplated by law and they have thus contrived to defeat the object they had at heart, namely, to settle their differences in a tribunal of their choice. In this view, the appeal cannot succeed and must be dismissed with costs.
11. The order under appeal is dated 24th July, 1922 and was made upon notice or motion given on the 5th July 1922 on behalf of the minor defendant Keshabdeo by his guardian ad litem Mt. Surji.
12. The order is one made under para. 15 of the second schedule to the Code setting aside an award made in the suit and dated 27th May, 1922. The award is not set aside upon any ground of misconduct of the arbitrators : though certain charges of irregularity were made, no decision upon them has been given. The main ground of decision is that the award is invalid as an award in a suit for dissolution of partnership in that it purports to direct the party to enter into a new partnership with effect from 1st July, 1922. Another ground is taken in addition - viz., that the award purports to declare a dissolution of partnership as at 30th June, 1922, the suit having been brought on 12th January 1922.
13. In my opinion the award is invalid for the reason that the arbitration proceedings have been from first to last contrary to and unauthorised by the provisions of Sections 89 and the second schedule of the Code.
14. To set forth in detail the history of the firm, the relationship of the parties and the terms of the various family arrangements is not necessary. But it is necessary to examine the scope and frame of the suit, to ascertain the parties interested, to consider what matters have been referred to arbitration and what matters have been dealt with.
15. The suit is brought for dissolution and winding up of a partnership business carried on under the name and style of 'Hardatrai Chamria Co.'
16. Hardatrai Chamria - the man who made the business - had throe sons and a grandson. His widow Mt. Annardeyi survived him. He had two nephews - sons of a brother : one is called Rampratap, the other died in 1911 leaving a widow Mt. Surji. At one time it was proposed that Mt. Surji should adopt the youngest son of Hardatrai, but in the end she adopted or purported to adopt Hardatrai's grandson instead. The position therefore is:
Gorakhram Hardatrai = Musst. AnnardeyiRampratap DurgaprasadAmlokchand = Musst. Surji KeshabdeoKeshabdeo Radhakissen Motilal.
17. The nephew Rampratap is the plaintiff. He impleads three sons of Hardatrai, Mt. Surji, his brother's widow and Keshabdeo, the minor defendant. Hardatrai's widow Mt. Annardeyi is not a party to the suit.
18. The plaint alleges that the business at first belonged to Hardatrai alone : that the plaintiff was at first made a partner with a share of two annas, afterwards increased to five : that the plaintiff's brother Amlokchand, deceased, had at one time a two annas share : that from Amlokchand's death (1911), Hardatrai and the plaintiff had been the partners, and that on 1st October, 1916, these two entered into a partnership agreement for 20 years. The plaint then recites two agreements, dated 16th November, 1916, which mean in effect (1) that the plaintiff's partnership with Hardatrai was to come to an end with the year 1916, (2) that Hardatrai's interest therein together with all his other property should be divided into four equal shares-one for his wife and one for each of his three sons, (3) that a sum of about 4 lacs, certain landed properties, jewellery and life policies were to be treated as his wife's absolute stridhan, and everything else as belonging to his estate whether it stood in her name or not, (4) that after 1916 a new firm should carry on business in the old firm's name : in this Hardatrai would not be a partner, but (a) the plaintiff, (b) Mt. Surji, (c) Hardatrai's three sons were to have certain shares according as Motilal should or should not be adopted by Mt. Surji.
19. The narrative of the plaint continues to the effect that since 1916 the business had been carried on under this new arrangement; that instead of Motilal, Mt. Surji had purported to adopt Keshabdeo; and that the plaintiff challenges this adoption. Finally, the plaint charges that Durgaprasad had been guilty of misconduct in the firm's affairs, and that the plaintiff is entitled by reason thereof to have a decree for dissolution made by the Court with ancillary relief.
20. Taking the plaint as it stands and without stopping to criticise it as a pleading, I would observe first that at least three successive partnerships are referred to, that all three are treated as contractual partnerships, and that the relief claimed appears to have direct reference to the last the - firm which came into existence under the scanty document of 16th November 1916, which is annexure B to the plaint. It seems quite probable that to take the accounts of this last partnership would involve accounts to determine the net shares in the previous partnerships. This depends, however, upon facts not disclosed. But in no view of the suit, is it a suit to ascertain what belonged to Hardatrai as distinct from the property of his widow, or a suit to ascertain his general estate as at 16th November, 1916 and to distribute it under the terms of the instrument of that date (annexure C to the plaint) : nor is it otherwise a suit to administer the estate of Hardatrai, deceased. Still less is it a suit for partition of joint property of a family of which Hardatrai was head and in which the plaintiff ex concessis had no interest.
21. The limits of the suit, however, set no bounds to the disputes among the family, and on 11th May, 1922, an agreement for arbitration was entered into by all the parties to the suit and also by Annardeyi who was no party to the suit. That this was intended to embrace matters in difference outside the suit is not denied. It was to decide the issues of the suit and all other matters in dispute - many of which related to the general estate of Hardatrai and the rights and interests of Annardeyi. What was done was this : - The parties to the suit presented a petition referring to their agreement of the 11th May, 1922, in general language as an agreement 'to refer all matters in dispute between them.' On the 23rd May, 1922, the Court thinking it to be for the benefit of the infant, pronounced an order of reference purporting to act under para. 3 of the second schedule to the Code. This order was not drawn up until the middle of June, by which time the arbitrators had acted on it, and their proceedings were under challenge : accordingly the exact wording of the order was disputed. Meanwhile the arbitration had been held on 24th, 26th and 27th May and the award made on the 27th. It appears that all the parties to the agreement of the 11th May were heard, and no party seems to have limited himself or herself to the matters in issue in the suit. On the second day, however, Rampratab sought a finding from the arbitrators that he and his brother, Amlokchand had been separate in estate. This was disputed on behalf of Keshabdeo whose guardian, Mt. Surji, had adopted him as a son to Amlokchand. Accordingly the attorney who represented the infant took objection to the arbitrators going into this matter or into anything outside the scope of the suit. This objection conflicted sadly with his previous submissions, it came late and it was contrary to the intention of the agreement of 11th May. The arbitrators held that the agreement entitled them to settle all disputes and their award reflects their opinion.
22. The award has been analysed by the learned Judge and I will mention only certain features. It purports to decide only 'basic points of dispute' to enable the parties to adjust accounts and effect divisions of properties and it looks forward to 'separate awards' to be made by the arbitrators, if necessary for working out their decisions. It decides that the plaintiff and Amlokchand, his brother, were not joint but separate. It decides hypothetically as to how the property, if any, left by Gorakhram should be divided (Gorakhram never had any interest in any of the firms according to the plaint). It directs that the estate of Keshabdeo shall be placed under the control and management of certain relations during his minority. It distributes the immovable property of Hardatrai. It directs that Annardeyi is to get a certain house in Howrah costing over eight lacs. The actual question of partnership is dealt with by declaring a dissolution as at the end of the succeeding month, directing a new partnership in certain shares with an option to any partner to decline and to get back his capital, and appointing certain people to make up the partnership accounts.
23. This award was filed in the suit under the second schedule and it was also filed in this Court as an award under the Indian Arbitration Act. In the former character it has been set aside by the learned Judge whose order in effect supersedes the arbitration and involves the continuance of the suit. In my opinion the award is void for all purposes.
24. The law of this country recognises four types of procedure in respect of arbitrations. The Indian Arbitration Act applies only to matters that are not before a Court of law, Sections 20 and 21 of the second schedule provide a procedure for enforcing in a Court of law an award, which has been made in an arbitration held without the intervention of a Court. Sections 17 to 19 provide machinery for enforcing an agreement to refer. Sections 1-16 deal with arbitration in suits.
25. The basis of an arbitration under the Arbitration Act is a written submission by the parties. The Act contains a statement of the provisions that will prima facie be implied in such a submission. It contains a Code by which arbitrations are to be controlled or interfered with. It provides machinery by which awards may be set aside, remitted or enforced in execution.
26. Under the first part of the second schedule the actual reference is the order of the Court. The jurisdiction of the Court exists only over parties to the suit and over them only with reference to matters involved in the suit. When an Order of Reference is made, the Court exercises a certain strictly limited measure of control and has certain other duties in reference thereto. When an award is made the award has no force whatever of itself. The Court may in certain circumstances modify or correct it. It may supplement the award by an order as to costs of the arbitration. If the award deals with any matter not referred, the Court is required to modify or correct it, if the matter is severable. If the matter is not severable, the Court may remit the award. In any case if the award stands it is effective not as an award but as leading up to a decree passed by the Court.
27. In my judgment, it is quite impossible 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 : under the Code provided by the Indian Arbitration Act and under the Code provided by the second schedule : under the superintendence and control of the Judge who has seizin of the suit and of the Judge disposing of business under the Indian Arbitration Act : partly upon an order of reference and partly under an agreement. When under para. 12 of the second schedule the Court proceeds to correct an award in a case where a sever-able matter, not referred, has been dealt with, it does so by cancelling that part of the award and the part so cancelled is set aside for all purposes. Neither para. 12 nor para. 14 is directed to such a confusion of jurisdiction as the present case discloses.
28. Prima facie the introduction of extraneous matters and parties should be viewed as legal misconduct on the part of arbitrators acting under an Order of Reference made in a suit. If, however, there is anything in the Order of Reference which authorises this, it is an order not warranted by the Code. The Court before which a suit is brought is required to decide the suit (if it be not withdrawn) : prima facie it is itself required to decide the suit and has no jurisdiction to refuse : but on certain rigid terms the decree of the Court may be founded upon the decisions of an arbitrator : on those terms the Court may part with its jurisdiction to decide, retaining always a jurisdiction to control - not an abstract right of supervision but a particular jurisdiction limited and defined by the rules of the second schedule, a particular period of limitation being applicable and particular provisions as to appeal. In principle the arbitration is a proceeding in the suit - a mere method of investigation leading up to the decree or else ending in nothing.
29. On behalf of the appellant the case of Darlington Wagon Co. v. Harding  1 Q.B. 245 was cited to us. So far as Section 57 of the Judicature Act, 1873, or Section 14 of the Arbitration Act of 1889 is concerned, the decision shows that a reference of all 'matters in difference' is a much larger order than any which a Judge has authority to make, and that, if it purported to be made under these statutes, it would be an excess of jurisdiction. In that case the order was held valid as having been made under the general authority of a Judge to act on the consent of the parties and appoint an arbitrator. In the present case the order referred only the matters in difference in the suit. One of the parties was an infant, whose guardian through his adoptive mother had been appointed only upon an investigation of her fitness to represent his interests in the suit. The order was undoubtedly intended as one under the second schedule. Moreover I am by no means prepared to hold that any Court, acting under the Civil Procedure Code has in India a general authority to act on the consent of parties, and thus to make an Order of Reference in a form which might apply to any dispute whatever independently of any relation to the jurisdiction of the Court.
30. I fear I have had rather small success in appreciating the grievance of the appellant. It seems to me that the award should have been remitted under para. 14 of the second schedule in order that out of the same arbitration two awards might be produced - one in the suit and one under the Indian Arbitration Act. The law in the present case goes much deeper than anything contemplated by para. 14 but in any case to remit is a matter of discretion, and to do so in this case would as an exercise of discretion be very remarkable indeed. The proceedings have been out of all relation to the second schedule save doubtless for the word 'invalid' in para. 15.
31. It appears that on 8th June, 1922, before the award had been filed, a motion to sot it aside was prematurely launched and to this Mt. Annardeyi was made a party. On the 5th July, 1922, she appeared by Counsel and objected that she was not a party to the suit. That motion having been dismissed, the present proceedings were commenced on the same day. It was none the less contended upon this appeal that the learned Judge could not, in the presence of all parties to the suit, deal with this award, made and filed in the suit under his Order of Reference of 23rd May, 1922. As an argument to point the invalidity of the arbitration proceedings considered under the second schedule this may deserve attention, but I see no reason in it otherwise.
32. I think the appeal should be dismissed with costs, Appeal dismissed.