Abdul Rahman Sahib vs Muhammad Siddig and Another

Venkatarama Ayyar, J.—The facts leading up to these revisions are these : The petitioner filed O. S. No. 154 of 1945 on the file of the

Court of the District Munsif of Tiruchirapalli to recover possession of Immovable property. He also claimed mesne profits. There was also a

prayer for injunction. The defendants contested the claim. While the suit was pending the parties agreed to refer the matters in dispute between

them in the suit and various other matters as well to arbitration and on 14-10-1945 they executed a muchilika in favour of five named arbitrators

containing ''inter alia'' the following statement:

We two parties shall accept the decision of the panchayatdars regarding the said suits and asset; etc.

In pursuance of this reference the panchayatdars pronounced an award on 18-11-1945, Ex. P. 2 and applied u/s 14 (2), Arbitration Act, to file

the same into Court, I, A. No. 1627 of 1945. The plaintiff being dissatisfied with the award applied to set it aside under Ss. 30 and 33 of the Act,

I. A. no. 51 of 1946, on the ground that there was no proper enquiry and that arbitrator; were guilty of misconduct. The plaintiff also contended

that as the reference related to matters pending in a suit and as there was no order of reference through Court u/s 23 the award was void. The

defendants filed I. A. No. 364 of 1946 for recording the award as a compromise under Order 23 Rule 3, Civil P. C.

All these applications were heard together by the learned District Munsif. He held that as there was no order of reference through Court the award

could not be upheld as such and he accordingly dismissed I. A. No. 1627 of 1945. He further ''held that the charges of misconduct against the

arbitrator; had not been established and he, therefore, dismissed I. A. No. 51 of 1946. He however, held that the award could be treated as a

compromise under Order 23, Rule 3, Civil P. C. and ordered I. A. No. 364 of 1946. In the result the suit was decreed in terms of the award

treating it as a compromise.

The plaintiff took up the matter in appeal to the District Court. In C.M.A. No. 12 of 1947 the District Judge confirmed the order in I. A. No.

1627 of 1945, on the ground that the reference not having been through Court, the award could not as such be upheld. In C.M.A. No. 13 of 1947

the learned District Judge agreed with the learned District Munsif that the charges of misconduct against the arbitrators were not made out and he

confirmed the order of dismissal of I. A. NO. 51 of 1946. In C.M.A. No. 43 of 1946 he agreed with the order of the learned District Munsif in I.

A. No. 364 of 1946 that the award though not valid as such could be upheld as a compromise under Order 23, Rule 3, Civil P. C. In the result the

decisions of the lower Court were confirmed. The plaintiff has preferred the above civil revision petitions against the orders in C.M.A. Nos. 12 of

1947, 13 of 1947 and 43 of 1946. Before me no attempt was made to attach the finding that the award is not vitiated by the misconduct of the

arbitrators, nor has the award been sought to be supported on the ground that it would be valid as such notwithstanding that there is no order of

reference through Court. It would follow that C. R. P. NOS. 1783 and 1784 of 1949 must be dismissed.

In C. R. P. No. 1785 of 1949 which is against the order directing the award to be recorded as adjustment under Order 23, Rule 3, Civil P. C.,

the petitioner contends that an award which is not valid qua award could be treated as a compromise only u/s 47, Arbitration Act, which is in these

term;;

Subject to the provisions of Section 46 and save in so far as is otherwise provided by any law for the time being in force, the provisions of this

Act shall apply to all arbitrations and to all proceedings thereunder; provided that an arbitration award otherwise obtained may with the consent of

all the parties interested be taken into consideration as a compromise or adjustment of a suit by any Court before which the suit is pending.

He argues that as the petitioner consented only to a reference to an arbitration and not to the award itself, it could not be taken into consideration

as a compromise under Order 23 Rule 3, Civil P. C. In -- ''Subbaraju v. Venkataramaraju'', AIB 1928 Mad 1025 (A), a Full Bench of this Court

held that when the parties agreed to refer the matter pending in a suit, to a private arbitrator and to abide by his award, the award when

pronounced could be treated as an agreement under Order 23 Rule 3. That, however, was a case of reference under Schedule 2 of the Civil P. C.

in which there was no provision corresponding to Section 47 and it was observed that Schedule 2 was not mandatory and that it does not say that

there should be no arbitration other than that which is dealt with by that schedule.

After the enactment of the Arbitration Act the question was raised in the case in -- ''Arumuga Mudaliar v. Balasubramania Mudaliar'', AIB 1945

Mad 294 (B). There the learned Judges were called upon to decide whether the law was governed by the Arbitration Act having regard to the

enactment of Section 47. In holding that the Arbitration Act had not made any difference in the law the Court observed as follows:

We are merely concerned with the proviso in Section 47 which plainly indicates that an arbitration award obtained otherwise than under the Act

may with the consent of the parties interested in it be regarded as a compromise of a pending suit. There is nothing in the proviso which precludes

antecedent consent. Order 23 Rule 3 says that where it is proved to the satisfaction of the Court that a suit has been adjusted wholly or in part by

a lawful agreement or compromise or where the'' defendant satisfies the plaintiff in respect of the whole or a part of the subject-matter of the suit,

the Court shall , order the agreement, compromise or satisfaction to be recorded and shall pass a decree in accordance therewith so far as it

relates to the suit. The provi3o to Section 47 leaves this provision of law untouched. In fact it would appear to be likely that it was inserted by the

legislature in order to allow the Court unfettered action under Order 23 Rule 3.

In the result it was held that the decision in --''AIR 1928 Mad 1025 (A)'', remained good law under the Arbitration Act and that the consent given

for reference might be treated as consent to the award to be pronounced on the reference and that it would fall within Order 23 Rule 3.

In -- Palaniyandi Chetti and Others Vs. Kandappa Goundan, , the question again came up for consideration and in following the decision in --

''AIR 1945 Mad 294 (B), as he was bound to sitting as single Judge, Viswanatha Sastri J. observed as follows:

Sitting singly I am bound by this decision though I consider that it is probable that the legislature intended that a private reference to arbitration in a

pending suit without the knowledge of the Court and without its direction which results in an award should not be made a rule of Court unless all

the parties interested in the suit consent to the award being filed into Court as a compromise or adjustment of the suit. Indeed the Calcutta High

Court had consistently taken that view before the Arbitration Act of 1940 and the proviso to Section 47 appears to confirm that view.

My attention has also been, drawn to a case reported in -- Pagammal (died) and Others Vs. Kasi Goundan and Others, , where Raghava R-ao J.

sitting singly followed the decision in -- ''AIB 1945 Mad 294 (B).

The Orissa High Court had recently occasion to go into this question fully and after an elaborate review of the case law it held that a consent to the

reference was not sufficient to make the award an adjustment within the meaning of p. 23 Rule 3, Civil P. C., and that unless there is agreement to

the award after it is pronounced it could not be regarded as a compromise under Order 23 Rule 3. Vide -- Indramoni Mohapatra Vs. Nilamoni

Moharana, . The decision in --''AIR 1945 Mad 294 (B)'' is expressly dissented from.

In -- ''C.M.A. No. 623 of 1946 (P)'', a Bench of this Court consisting of Happell and Govindarajachari JJ. referred to a Full Bench the question

whether an award not agreed to could be regarded as compromise under Order 23 Rule 3 and whether -- ''AIR 19-15 Mad 294 (B)-, was

correctly decided. But the appeal, however, was not prosecuted and the question was not determined. It appears to me that the question is one of

considerable importance and having regard to the divergence of judicial opinion there ought to be an authoritative pronouncement on the Question.

The papers will accordingly be placed before His Lordship the Chief Justice for orders as to the posting of the case before a Bench or Full Bench.

JUDGMENT

Venkatarama Ayyar, J.

The facts leading up to this reference have been fully stated in the order of reference and there is no need to recapitulate them. The question that

arise; for determination is, whether when parties to a suit refer their disputes to arbitration without the intervention of the Court and that results in an

award, a decree can be passed under Order 23 Rule 3, Civil P. C., in terms of the award, treating it as an adjustment or compromise of the suit.

The answer to it depends on the construction of the proviso to Section 47, Arbitration Act 10 of 1940.

To begin with, it will be useful to examine what the law on the subject was before the enactment of Section 47. That was contained in two statutes:

The Indian Arbitration Act 9 of 1899 and the second schedule to the Code of Civil Procedure, Act of 1898. Leaving out the former enactment as

not material to the present discussion the latter contained provisions for these classes of arbitration: (1) where in a pending suit the parties thereto

agree to refer the matter to arbitration through Court, that is provided in paras. 1 to 16 of the second schedule corresponding to Sections 506 to

522 of Act 14 of 1382 and Ss. 312 to 325 of Act 8 of 1859; (2) where in pursuance of an agreement to refer, the parties move the Court to refer

the matters in dispute to arbitration that is provided in paras, 17 to 19 in the Second Schedule corresponding to Ss. 523 and 524 of Act 14 of

1882 and Section 326 of Act 8 of 1859; and (3) where there is a private reference and an award and the parties apply to the Court for filing the

award -- provision for this is made in paras. 20 and 21 of the Second Schedule corresponding to Sections 525 and 526 of Act 14 of 1882 and

Section 327 of Act 8 of 1859. There were provisions in all these three classes of arbitration for the Court enquiring into the validity of the award

and passing suitable orders, either passing a decree in terms of it or setting it aside or remitting it for reconsideration. None of these provisions had

any application where in a pending action the parties referred their disputes to the decision of an arbitrator not through Court but privately and

there was an award passed on such reference. In the absence of an express provision in the Code as to how such an award was to be dealt with,

the question frequently came up for determination whether it could be regarded as a compromise under Order 23 Rule 3, Civil P. C., even when

one of the parties refused to accept the same; and on that there was a sharp difference of opinion among the several High Courts. That it could be

recorded as an adjustment of the suit under Order 23 Rule 3 notwithstanding that one of the parties refused to accept it, was the view taken by a

Full Bench of this Court in -- Penmetcha Subbaraju Vs. Penmetcha Venkatramaraju, ; of the Bombay High Court in -- Chanbasappa

Gurushantappa Hiremath Vs. Baslingayya Gokurnaya Hiremath, ; and of the Allahabad High Court in -- Gajendra Singh Vs. Durga Kumari . The

contrary view that such an award could not be given effect to as a compromise or adjustment under Order 23 Rule 3 was maintained by the

Calcutta High Court in a number of cases. Vide -- ''Dekari Tea Co. Ltd. v. Indian General Steam Navigation Co., Ltd.'', AIR 1921 Cal 238 (I);

Amar Chand Chamaria Vs. Banwari Lall Rakshit and Others, ; -- Guimoni Dasi Vs. Tarini Charan Porel, ; -- Rohini Kanta Bhattacharjya Vs.

Rajani Kanta Bhattacharjya and Others, and -- Mahammad Mia Pandit and Others Vs. Osman Ali and Others, , by the Lahore High Court in --

''Hari Parsad v. Soogni Devi'', AIR 1921 Lah 232 (N); -- ''Nihal Singh v. Ashtawakar'', AIR 1930 Lah 860 (O) and -- ''Sitaram v. Harbans LaT,

AIR 1936 Lah 374 (P) by the Patna High Court m -- ''Bhimraj Kanailal v. Munia Sethani'', AIR 1935 Pat 243 (Q), by a Pull Bench of the

Rangoon High Court in -- ''Maung Hlay v. U. Ge'', AIR 1939 Rang 300 (R); and by the Nagpur High Court in -- ''Ramdayal v. Sheodayal'', AIR

1939 Nag 186 (S).

This was the state of the law when the Arbitration Act was passed. Section 47 which deals with this question runs as follows:

Section 47: ""Subject to the provisions of Section 46, and: save in so far as is otherwise provided by any law for the time being in force, the

provisions'' of this Act shall apply to all arbitrations and to all proceedings thereunder;

Provided that an arbitration award otherwise obtained may with the consent of all the parties interested be taken into consideration as a

compromise or adjustment of a suit by any Court before which the suit is pending.

Now, the point for determination is whether under the proviso to this section an award passed on a private reference in pending suits can be

enforced as a compromise of the suit even when one of the parties refuses to accept it. This question came up for decision before this Court in --

V.S.A. Arumuga Mudaliar Vs. V.S.P. Balasubramania Mudaliar and Others, . There, the parties to an action which was pending referred their

disputes for the decision of an arbitrator not through Court but privately and that resulted in an award. Some of the parties having refused to be

bound by it, an application was taken out by the other parties to record it as a compromise under Order 23 Rule 3. That was resisted on the

ground that by reason of the proviso to Section 47, the decision in -- Penmetcha Subbaraju Vs. Penmetcha Venkatramaraju, , was no longer good

law and that under that section unless there was a consent to the award it could not be filed as an adjustment of a suit under Order 23 Rule 3.

In rejecting this contention, Leach C. J. observed :

We are merely concerned with the proviso in Section 47, which plainly indicates that an arbitration award obtained otherwise than under the Act

may with the consent of the parties interested in it be regarded as a compromise of a pending suit. There is nothing in the proviso which precludes

antecedent consent........ The proviso to Section 47 leaves this provision of law (Order 23 Rule 3) untouched. In fact it would appear to be likely

that it was inserted by the Legislature in order to allow the Court unfettered action under Order 23 Rule 3.

After referring to certain observations in -- ''AIR 1928 Mad 1025 (A), the learned Judge concludes:

There is here clear indication that an agreement to accept a future award can be treated as a compromise in the suit and, in our judgment, the

Arbitration Act of 1940 in no way alters the position.

If this reasoning is correct, then it must be held that in enacting the proviso to Section 47, the Legislature adopted the views held by the High

Courts of Madras, Bombay and Allahabad in preference to those held by the other High Courts.

Examining first the language of the proviso to Section 47, it enacts that an ""arbitration award"" may be taken into consideration as a compromise

or adjustment of a suit only ""with the consent of all the parties interested"". The consent here referred to must be something other than the consent to

refer the dispute for arbitration because without such a consent there can be no arbitration proceedings and in requiring that an ''arbitration award''

may be taken into account only with the consent of the parties the plain intendment of the enactment is that, to do so, there must be something

more than a consent to refer to arbitration, that it must be a consent to the arbitration award itself. If this is the correct interpretation of the proviso,

the result is that where there is a private reference in respect of a matter pending in the suit, the award which is given thereon cannot as such be

filed as an adjustment under Order 23 Rule 3. But if subsequent to the award the parties agree to accept it, that could be recorded as a

compromise under Order 23 Rule 3. That was the view taken by Rankin J. in -- AIR 1921 Cal 238 (I)'' and -- Amar Chand Chamaria Vs.

Banwari Lall Rakshit and Others, '', .and followed in later decisions of the Calcutta High Court.

The view expressed in -- V.S.A. Arumuga Mudaliar Vs. V.S.P. Balasubramania Mudaliar and Others, '', that the proviso to Section 47 does not

alter the law as laid down in -- AIR 1923 Mad 1025 (A) does not, with all respect, give sufficient weight to the words ""with the consent of all the

parties interested"". It does not answer the question to state that the proviso does not preclude antecedent consent. If the consent required by the

proviso is to the arbitration award which is to be filed as compromise under Order 23 Rule 3, it is difficult to see how there can be such a consent

when there is no award in existence. In reason, a party can be said to agree only to something which is put before him and not to something which

is non-existent. The decision in -- Penmetcha Subbaraju Vs. Penmetcha Venkatramaraju, '', proceeds on the view that when once the parties

agree to refer their disputes to arbitration, that amounts to an agreement to accept the award as an adjustment of the claim and that, therefore, the

award could be filed under the provisions of Order 23 Rule 3. If it was the intention of the Legislature to adopt this view, it would have been

sufficient to say that any arbitration award might be taken into account as an adjustment or compromise. The further condition that there should be

consent of the parties would be redundant and meaningless. The Calcutta High Court had held in Guimoni Dasi Vs. Tarini Charan Porel, and

Rohini Kanta Bhattacharjya Vs. Rajani Kanta Bhattacharjya and Others, , that though the award passed on a private reference in a pending action

could not by itself be regarded as a compromise under Order 33 Rule 3, it could be so treated if subsequent to the award the parties agreed to

accept it. In enacting the proviso to Section 47 the Legislature would clearly appear to have adopted this view.

The decision in -- Penmetcha Subbaraju Vs. Penmetcha Venkatramaraju, '', it may be noted, was to a large extent based on the view that the

provisions relating to arbitration contained in the Second Schedule to the CPC were not exhaustive Phillips J. observed,

The second schedule, Civil Procedure Code, is not mandatory, but provides for reference to arbitrators at the will of the parties and also provides

that certain procedure must be followed if they take action under that schedule. It does not, however, say that there shall be no arbitration other

than what is dealt with by the second schedule, and if parties to the suit choose to refer to arbitration it is open to them to adopt the provisions of

the second schedule or not as they please.

This reasoning would be inapplicable to the Arbitration Act, 1940, because its scope is statedly ""to consolidate and amend the law relating to

Arbitration in British India"". Section 89 of the CPC provides that ""save in so far as is otherwise provided by the Arbitration Act, 1899, or by any

other law for the time being in force, all references to arbitration whether by an order in a suit or otherwise, and all proceedings thereunder, shall be

governed by the provisions contained in the second schedule"", and in -- K. Chenchuvenkatanagiah Chetti and Co. Vs. M. Padmanabhan Chetti, ,

it was held that Order 23 Rule 3 was ""other law for the time being in force"" which was saved by Section 89, Civil P. C. In the Arbitration Act of

1940 Section 47 which corresponds to Section 89 of the Code enacts that ""save in so far as is otherwise provided by any law for the time being in

force, the provisions of this Act shall apply to all arbitrations and to all proceedings thereunder"". That the ""other law for the time being in force"" in

this section cannot take in Order 23 Rule 3 is clear from the proviso, which makes provision for ""an arbitration award otherwise obtained"" being

treated as a compromise -- a provision which would have been wholly unnecessary, if ""any law for the time being in force"" comprehended Order

23 Rule 3, and which in its scope and tenor is different from, if not inconsistent with, the terms of Order 23 Rule 3.

It should be remembered that under the Arbitration Act there is no machinery provided for going into the question of validity of awards passed

in private references in pending suits. Section 47 renders the provisions of the Act as such inapplicable to them. What then happens if the award is

attacked on the ground of legal misconduct. It was observed in -- V.S.A. Arumuga Mudaliar Vs. V.S.P. Balasubramania Mudaliar and Others, ,

Of course, a party cannot be compelled to accept an award which is unlawful. The agreement to accept an award yet to be made presupposes

that it will be a lawful award.

But the question is whether the binding character of the award could be gone into in proceedings under Order 23 Rule 3. It is no doubt laid down

therein that the compromise should be lawful. Does that contemplate an enquiry into the validity of the award when it is challenged on the ground of

misconduct of arbitrator. There is ample authority for the position that the word ""lawful"" in Order 23 Rule 3 has reference to the terms of the

agreement and not to its binding character. Vide -- Kuppuswami Reddi and Another Vs. Pavanambal, and -- Namburi Suraparaju Vs. Nulu

Venkatarathnam, . Enquiry into legal misconduct would, on this principle, be outside the scope of Order 23 Rule 3. There is also no provision for

the Court remitting an award for reconsideration; it can only either record it as an adjustment or reject it. The parties to such an award, therefore,

have not the same rights with reference thereto as parties to the awards in arbitration proceedings which fall within the scope of the Act; and the

successful party to such an award would be in a better position, and the unsuccessful party in a worse position than if the award had been made in

a reference through Court. It is difficult to believe that all this was intended by the Legislature.

It is also significant that the proviso requires the consent of the ""parties interested"". If the consent contemplated by the proviso is merely to the

agreement to refer to arbitration, then the words ""consent of parties"" simply would have been sufficient and appropriate. If the consent required is

for the award itself, then the use of the words ""parties interested"" becomes apt and intelligible.

Turning next to the authorities bearing on the question, disagreement with the decision in -- AIR 1845 Mad 294 (B), was expressed by

Happell and Govindarajachari JJ. in their referring judgment in -- C.M.A. No. 623 of 1946 (F)'', by Viswanatha Sastri J. in -- Palaniyandi Chetti

and Others Vs. Kandappa Goundan, , and by Mack J. in -- ''C.M.A. No. 15 of 1950 (V)''. In the Orissa High Court in -- Indramoni Mohapatra

Vs. Nilamoni Moharana, , and the Patna High Court in -- Raghunandan Rai and Others Vs. Sukhlal Rai, , have held that having regard to the

proviso to Section 47, an award in a private reference in a pending action cannot be regarded a a compromise under Order 23 Rule 3; and the

decision in -- V.S.A. Arumuga Mudaliar Vs. V.S.P. Balasubramania Mudaliar and Others, '' was dissented from. A single Judge of the High Court

of Allahabad held In -- ''Shiam Kishore v. Ramnarain Singh'', AIR 1947 All 178 (X), that an award passed in an arbitration with reference to a

matter pending in succession certificate proceedings could, by reason of Section 46 of the Act, be regarded as an adjustment under Order 23 Rule

3, Civil P. C. and reliance was placed on the decision in -- ''Dular Koeri v. Fayag Koeri'', AIR 1942 All 45 (Y), as supporting that position. But

then the award in question in that case had been made before the enactment of the Arbitration Act, and the learned Judges merely observed: ""We

need not go into the merits of the dispute because it is sufficient for us to say that for all future practical purposes the difficulty has now been

removed by s. 47 of the new Arbitration Act of 1940, Which not only repeals Section 89 of the Code, but replaces it by a new section which

makes the matter quite clear."" Then they refer to the decision of the Pull Bench in Gajendra Singh Vs. Durga Kumari , and followed it on the

principle of ''stare decisis'' again observing that ""the matter is not one of practical importance for the future"". We do not read these observations as

meaning that u/s 47 an award in a private reference is a pending'' suit and could be regarded as a compromise or adjustment.

We are accordingly of opinion that under the proviso to Section 47, an arbitration award obtained otherwise than in proceedings taken in

accordance with the Act cannot without more be recognised as a compromise or adjustment of the suit; that no decree can be passed thereon

under the provision of Order 23 Rule 3; and that the decision in -- V.S.A. Arumuga Mudaliar Vs. V.S.P. Balasubramania Mudaliar and Others, '',

should be overruled. But if, after an award is made, the parties thereto agree to accept it, that will be a compromise and a decree based thereon

could be passed under Order 23 Rule 3.

In the result, C. R. P. No. 1785 of 1949 will be allowed; the order made in I. A. No. 364 of 1946 passing a compromise decree under Order

23 Rule 3 in terms of the award is set aside and the suit O. S. No. 154 of 1945 on the file of the Court of the District Munsif, Tiruchirapalli,

directed to be heard in accordance with law. The parties will bear their costs throughout.