Radha Kishan vs Sant Ram and Others

R.S. Narula, J.—Ram Chand had two sons, Sant Ram, respondent No. 1 and Raghbir Dass, respondent No. 2. Sant Ram''s son is Bipin Lal, respondent Mo. 4, Radha Kishan appellant, Bal Krishan Vaid, respondent No. 3 along with Raghbir Dass and Bipin Lal entered into a partnership for doing business. The partnership deed contained arbitration agreement. Sant Ram, father of Bipin Lal (so described in the deed) was named as an arbitrator to decide any disputes arising between the partners relating to the firm Raghbir Dass Sood and Co. Disputes arose between the parties which were referred to Shri Sant Ram, arbitrator by application Exhibit 0.28, dated 25th February, 1960. The arbitrator gave his award on 25th September, 1960. According to the award the expenditure of the firm is shown as Rs. 1,93,642/29 and the gross receipts total Rs. 1,21,392. The arbitrator then said that there was a net loss of Rs. 72,250/21 which the partners were liable to bear in accordance with their respective shares. Thus Radha Kishan, appellant was found to be liable to pay to Bipin Lal, respondent a sum of Rs. 18,062/56. This award was filed by the arbitrator in Court and objections were preferred against the same bv Radha Kishan, appellant and Bal Krishan Vaid, respondent u/s 30 of the Arbitration Act, 1940 (10 of 1840). These objections were dismissed by the Senior Sub Judge, Hoshiarpur by judgment dated 26th December, 1961. It is this order dismissing the objections of the appellant and respondent No. 3 which is the subject-matter of this appeal u/s 39 of the Act.

Shri Amar Chand Hoshiarpuri, the learned counsel appearing for the appellant has raised a solitary question in this appeal. He says that the reference and the award are liable to be set aside as Sant Ram, arbitrator had an undisclosed interest in the business of his son in this firm. The learned counsel has taken me through the statement of Sant Ram, arbitrator himself who has appeared and O. W. 1 in this case. The statement of the witness was recorded in detail but a summary of the evidence of this witness on record has been given in para 5 of the judgment of the trial Court. The relevant passage is in the following words:

The arbitrator further admitted that he raised a loan on behalf of his son from one Ram Nath of Amritsar and for that reason executed a pronote in his favour on behalf of his son. Similarly he admitted that he took Rs. 5000 from one another Amar Nath on loan and got invested in the name of Vipan Lal in this partnership business. He also admitted that he received on behalf of the partnership Rs. 2000 vide Ext. 0.27. He, however, denied that he was the real partner in this business but stated that he was helping his son only by these acts. The learned counsel for the objectors did not cite any authority bearing upon the facts of the present case to show that the above acts of the Arbitrator would constitute him a real partner in this business and would make his son to be only a benamidar in this partnership. It appears to me that he was only taking interest in the prosperity of this business because of his son Vipan Lal being a partner in it. The above acts at the most show that he rendered every possible help to his son in this business by raising loans for him and by doing certain other acts for him in connection with the partnership, without in any way, making him to be a real partner in the business The real partner remained his son Vipan Lal in whose name along with the other partners, it continued to run and who was responsible for its profit and loss etc.

There is no doubt that the relationship of the Arbitrator with Bipin Lal, respondent was well known to the parties and the learned Senior Subordinate Judge was fully justified to hold that his relationship could not possibly form a ground for attacking his award. It is, however, vehemently argued that the appellant had no knowledge whatever of the financial interest of the Arbitrator in the business of his son Mr. S.S. Mahajan, the learned counsel appearing for respondents Nos. 2 and 4 has taken me through the entire statement of the Arbitrator and that of Radha Kishan appellant. Though the Arbitrator has said about the parties knowing him and his relationship with Bipen Lal he has not even endeavoured to state that the appellant knew of his financial interest in the business of his son in this firm nor has any question been put to Radha Kishan, appellant about his such knowledge when he appeared in the witness box. It may not be possible to state if the judgment or award of the Arbitrator was at all affected by the financial interest of the Arbitrator in his son who was one of the parties to the dispute. But it certainly is not necessary to prove that such interest has had material effect on the award itself. Justice must not only be done but must also appear to be done. It is a settled principle of law that if an arbitrator has an interest in the subject-matter of the dispute which he is going to decide, he is not a fit person to decide he dispute unless the parties are aware of such interest which has been disclosed to them and have referred the dispute to him with that knowledge. There is no evidence on the record to show any such knowledge of the parties. The interest of Sant Ram Arbitrator in the business of his son is not disputed. He has raised money for his son under his own signatures. In case the loans are not repaid to the creditors, it is the Arbitrator who would be liable to pay them. He is, therefore, naturally interested to provide money to his son to repay the loans which are incurred for his interest by the Arbitrator.

The learned Senior Subordinate Judge has noticed the financial interest of the Arbitrator in Bipin Lal, respondent but has held that this does not show that Bipin Lal was merely acting benami and Sant Ram Was the real partner. The finding of the Senior Subordinate Judge might be correct. But this does not alter the situation which has vitiated the award on the ground of undisclosed interest of an Arbitrator in one of the parties. It is certainly not necessary that the arbitrator should be virtually a partner himself. Any substantial interest of the arbitrator vitiates the award.

In this view of the matter I accept this appeal, set aside the order of the learned Senior Subordinate Judge, Hoshiarpur, dated 26th December, 1961, accept the objections of the appellant u/s 30 of the Arbitration Act and set aside the award of Sant Ram, respondent, dated 25th September, 1960. In the circumstances of the case the reference is also superseded. The parties are, however, left to bear their own costs throughout.