R.K. Thirumalai Chettiar vs K.N. Nanjayya Gowder and Another

Wadsworth, J.—This appeal arises out of an order on an application to file an award as decree. The award proceeded on a reference to

arbitration made outside the Court and the Court has on the application of the appellant passed a decree in terms of the award except for one

stipulation which has been regarded as penal. The arbitration arose out of a dispute between partners and the reference was in the following terms:

As we cannot conduct the said shop jointly, we have completed the accounts relating to the business in respect of the same from 1st April 1934 till

30th April 1935 and have delivered the same to the pinchayatdars. Only agreeing to abide wholeheartedly by the award which you, the

panchayatdars, may pass directing the delivery of the said company to one of the partners and also the rules and regulations you may frame in

connexion therewith, we have executed the muchilika signing hereunder.

As a result of this reference the arbitrators passed an award determining the amounts due by and from each of the partners and directing that the

business should be handed over to one of the partners and that the other partners should not only pay what was due by them but should execute

release deeds in favour of the partner who is to have the control of the business. They stipulated for a time within which these obligations should be

carried out and in the case of each of the partners upon whom obligations were cast they provided for some payment by way of damages in the

event of default. Each of the present respondents was to pay a sum of Rs. 1000 in default of his paying the amount found due from him and

executing the release deed. The learned subordinate Judge, recognizing that there was no objection at the time when the award was passed and

that the written statements of the contesting defendants only disputed the validity of the award to the extent of the alleged penalty, first passed a

decree for the enforcement of the award so far as there was no objection. Then after some argument he took a memorandum from the plaintiff''s

vakil agreeing to allow the Court to fix a reasonable sum in lieu of the damages of Rs. 1000 payable by each of defendants 1 and 2 (respondents

here). The learned subordinate Judge - to my mind quite rightly - held that he had no jurisdiction to estimate the amount of damages and fix a sum

other than that stipulated for in the award. He proceeded however to consider the validity of this term of the award and came to the conclusion that

it went beyond the terms of the reference in so far as it provided, what the learned Judge found to be a penalty.

Now, the powers of a Court in enforcing an award on arbitration without the intervention of Court are laid down in paras. 20 and 21 of

Schedule 2, Civil P.C. Paragraph 21 requires the Court to pronounce judgment according to the award where no ground such as is mentioned in

para. 14 or para. 15 is proved; and it is, I think, established that if the award contains any provision which is objectionable with reference to para.

14 or para. 15, and if that provision is severable from the rest of the award, the Court can enforce the award so far as it is unobjectionable. We

are not now concerned with para. 15 there being no allegation of misconduct, fraud or such matters. Paragraph 14(a) deals with omissions from

the award, with which we are not concerned, and with the determination of matters not referred to arbitration, which is the ground alleged here for

challenging the award. There has also been some reference to Clause (c) which relates to an objection to the legality of the award apparent on the

face of it. I do not think myself that Clause (c) has any application to the facts of the present case. A stipulation for liquidated damages in case of

default is not per se illegal. The most that can be said is that if a Court which has to adjudicate on a contract finds that with reference to the terms

of Section 74, Contract Act, the amount stipulated in the contract is in excess of the reasonable compensation for breach of the contract, the Court

can reduce the damages to what it considers to be reasonable. It follows therefore that this provision whereby defendants 1 and 2 are each

required to pay Rs. 1000 if they fail to pay what is due from them and to release their interest in the business within the stipulated time, is not

necessarily an illegal stipulation. The most that can be said is that it may provide by way of damages for more than what the Court, if it had

jurisdiction to go into the matter, would be prepared to award u/s 74, Contract Act. As I have already indicated, to my mind the Court has no

jurisdiction to go into what is the proper amount of damages and cannot interfere with this figure embodied in the award unless it can be shown to

be a decision illegal on its face (which in my opinion it cannot) or unless it can be shown to go beyond the scope of the reference to arbitration.

Now, the reference to arbitration is not confined to providing that the arbitrators shall decide who is to have the management of the business for

the future and what are the rights and liabilities of the partners in the dissolved business. What the reference contemplates is that the arbitrators

should pass an award directing the delivery of the business to one of the partners and frame rules and regulations for that purpose. That is to say,

the arbitrators are put into the position not merely of the adjudicating Court but also to some extent of the executing Court. They are required not

only to decide on matters of title but to frame regulations for the enforcement of their decision. Any other view seems to me to ignore the essential

words ""directing the delivery of the said company and the rules and regulations you may frame in connexion therewith."" I have had the advantage of

a reading of the Tamil original and it seems to me that the Court translation substantially renders the meaning of this passage. It contemplates not

merely an adjudication on the rights and liabilities of the parties but the delivery of the business to the partner who is to carry it on and the drafting

of rules to see that this delivery is carried out. When once it is conceded that the arbitrators were authorized to frame rules regulating the delivery

of the business, it seems to me to follow that they were empowered to fix the times for the performance of various parts of the act of delivery and

to assess the damages for defaulting in adhering to that time-table. I am of opinion that the reference to arbitration should be read not in any

pedantic spirit but so as to interpret broadly the intention of the parties. The fact that this award was not contrary to the intention of those who

made the reference is shown by the absence of any objection by them to the award when it was propounded. It is only after there was default and

after the defaulting parties were required to pay the damages stipulated, that they awoke to the fact that the award was in any way defective. I hold

therefore that this award is one which can and should be enforced in toto. The appeal is therefore allowed. There will be a decree for the plaintiff

as prayed for with costs as against defendants 1 and 2 throughout.