Shambhunath Goenka Vs. Madan Mohan Ghuwalewala - Court Judgment

M.S. Joshi, J.

(1) Shambhunath Goenka and Madan Mohan were carrying on business as partners under the name and style of Sugar Trading Company at Muzaffarnagar. The partnership was started sometime in the end of 1952 and was dissolved voluntarily on 12-10-1953. On 3-10-1956 Shambhunath filed a suit for rendition of accounts and the Commercial Sub-Judge Delhi granted him a preliminary decree on 13-8-1957. The local commissioner appointed by the Court went into the accounts and reported that a sum of Rs. 42,536-9-9 was due to the plaintiff. The defendant took up cudgels against this report and it was set aside on 11-2-1966 on the request of the parties and the case was left to be decided by the Court. The suit was transferred to the High Court in 1969 and on 28-1-1971 the parties agreed to the reference of their dispute to Shri Cyan Singh Vohra, Advocate, as an arbitrator. Later on the appointment of Shri Vohra was revoked and Shri S. B. Capoor, a retired Judge of the Punjab and Haryana High Court, was appointed as a referee. Shri S. B. Capoor, however, expressed his inability to fulfilll the assignment and he came to be replaced by Shri S. C. Manchanda, Shri S. C. Manchanda by Shri Rameshwar Dial and Shri Rameshwar Dial by Shri C. G. Suri, 6 another retired Judge of Punjab and Haryana High Court. The last mentioned referee, Shri Suri, disposed of the matter on 24-3-1975 and awarded a sum of Rs. 27.860.00 with interest at 5 per cent per annum to the defendant. Shambhunath preferred objections to the award on 23-4-1975 and contended that Shri Suri did not act as a referee because instead of making a statement according to his knowledge fit belief he chose to give a decision in the form of an award; that his decision was contrary to law and without jurisdiction, that he did not take into. consideration the parties' agreement that the liabilities and outstandings settled and received would also be accounted for in the balance-sheet, that all the disputes referred to him were not decided, that the referee made a non-speaking order giving no reasons for his award, that his decision suffered from an apparent error and that he was guilty of legal misconduct. The objector's pleas were controverter by the plaintiff and hence the following issues arose :-

'1. Whether the decision of the refree Shri C. G. Suri dated 24-3-1975 is invalid because :- (a) He has not filed any statement ; (b) He has not taken into consideration the material evidence adduced by the plaintiff ; (c) He has left important matters undecided ; (d) It suffers from errors apparent on the face of the award; (e) Because the referee was guilty of legal misconduct ; (f) Because he had no jurisdiction to decide the matter. 2. Whether the objections raised by the plaintiff are not maintainable under the law and the plaintiff is otherwise estopped by his conduct from raising them ?'

(2) I have heard the learned counsel for the parties at considerable length and have perused documentary as well as oral evidence adduced in the case. I will now take up the issues one after the other for discussion and decision.

(3) The plaintiffs case is that Shri C. G. Suri was appointed as a referee not as an arbitrator and this could obviously be ordered only under section 20 of the Evidence Act. He was supposed to make, thereforee, a statement on the basis of the information in his possession and that statement would have operated as an admission by both the parties with a binding effect. What Shri Suri, however, actually did was that he studied the evidence led by the parties, heard protracted arguments extending over several days and then proceeded to give a 'decision'. He had no jurisdiction to make an award in the manner he did and his departure from the procedure indicated by section 20 aforesaid amounted to a legal misconduct. The error perpetrated by him in this manner was apparent from the contents of the award itself and it would vitiate the same.

(4) The reference in question was made on 19-8-1974 at the initiative of Shambhunath himself. He submitted an application registered as I.A. No. 1769 of 1972 for the purpose and his counsel, Miss C. M. Kohli, stated before the Court, inter alia, that a new referee may be appointed by the court in place of Mr. Rameshwar Dial, Advocate, that the plaintiff would pay the entire fee to be fixed by the court; that the person to be appointed by the court would act as a referee and not as an arbitrator, that the referee would be master of his own procedure, that he would not be obliged to record evidence, to examine witnesses etc. and he could decide the dispute between the parties on the evidence already recorded and that Shri C. G. Sun, retired Judge of the Punjab and Haryana High Court, might be appointed as the referee if the defendant was agreeable. The special attorney of the defendant, Chhanu Mal Gupta, accepted the plaintiff's proposal and the court appointed Shri C. G. Suri as the referee on the terms suggested by Miss C. M. Kohli. It has not been denied before me that it was known to the parties at the time the name of Shri C. G. Suri was suggested to the court for appointment as referee, that he had no personal knowledge of the affairs of the partnership and there was no question, thereforee, of his being approached to seek information on any crucial point. He was specifically required to decide the dispute which has defied resolution for 13 years and for doing so he could depend upon the evidence already on the record and collect further evidence, documentary or oral, if considered necessary.

(5) The parties had taken their differences to Shri S. B. Capoor as referee in the first instance and it was agreed, so that the litigation could be reduced to the minimum, that the decision given by him would be final and binding on them. Though the parties did not say anything on the subject in so many words because Shri Suri's appointment was made in the aforesaid background they might have carried the impression that the award given by him would put an end to the dispute completely. An arbitrator's award can always be objected to by the aggrieved party and that is why the parties seem to have made it a point that Shri Suri be not given that designation. But, as already stated, Shri Suri was expected to go through the entire material on'the record, to collect further evidence if it was suggested by the circumstances of the case and then to give a 'decision' on the controversy referred to him. In spite of their saying, thereforee, that he was to act as a referee, not as an arbitrator, they appointed him as an arbitrator in fact and he did no wrong in making an award after perusing the evidence produced and hearing the arguments addressed by the parties in consonance with his mandate. It was held by the Privy Council in Chmppa Lal v. Kallu Lal and others that a reference to an outside party to decide matters in dispute in a suit is not a reference to that party for information in reference to a matter in dispute, and such reference cannot be regarded as made under section 20 of the Evidence Act . In Sadhu Ram and others v. Ude Ram (2), the facts of which case are on all fours with the present one, construing the provision in section 20 of the Evidence Act Falshaw, CJ., who spoke for the Bench, observed as under :-

'IT is hard to read into this section any more than that if a party to a suit agrees to be bound by a statement of fact made by a third party the statement of that third party when made is to be treated as an admission by the party who made the offer, and if both parties agree to refer a matter to a third party his statement will be binding on both of them, but I cannot regard the word 'information' as meaning anything but a statement of fact, and not a decision of any kind.'

The court treated the statement of the referee deciding the dispute as an award and ordered that the objections raised thereto be considered on their merits. I am in respectful agreement with the ratio of the aforesaid decision and have no hesitation in holding that Shri Suri was in fact appointed as an arbitrator, he was supposed to make no statement as contemplated by section 20 of the Evidence Act and he was well within the precincts of his authority to go into and evaluate the evidence placed before him and then to give a decision in consonance with agreement between the parties endorsed by the Court's order. Because he acted within the four corners of the reference he was handicapped by no lack of jurisdiction, he was guilty of no misconduct and his award does not suffer from any error apparent on the face of it.

(6) The plaintiff's counsel has argued that Shri Suri did not give any decision about the nine matters enumerated in paragraph 6 of 'his objection petition involving an amount of Rs. 1,07,928/0/4 and he did not consider all the evidence placed on the record. Chhanu Mal Gupta, special attorney of the defendant (D. W. 1), however, deposed that Shri Suri had gone through all the documents and books of accounts which the parties had produced and he had heard carefully all the contentions raised by them. The liabilities of the firm were brought to his notice by the plaintiff and the credit and debit entries were also explained to him. There were 15 hearings and the referee made his decision after considering all the aspects of the matter put before him. The plaintiff did not ask a single question in cross-examination to challenge the correctness of the aforesaid statements and we can presume, thereforee, that all what the witness said was accepted by him as correct. Rameshwar Lal Sharma (P. W. 1), the man who had been representing the plaintiff before the referee and who was the only witness examined by him admitted before the Court that Shri Suri had given him a proper hearing, all the account matters including the liabilities and the nine points referred to in paragraph 6 of the objection petition had been explained to him and he had perused the account books produced on behalf of the plaintiff thoroughly. It is futile for the plaintiff to urge, in view of these categorical admissions, that the referee did not take any material evidence into consideration.

(7) It is no part of the duty of an arbitrator to offer reasons for his decision unless he is required by the terms of the reference to do so. It is again not obligatory upon him to give a separate finding on all the matters taken up for adjudication. The Supreme Court laid down in Smt. Santa Sila Devi and another v. Dhirendra Nath Sen and others : [1964]3SCR410 (3) that (i) a Court should approach an award with a desire to support it, if that is reasonably possible, rather than to destroy it by calling it illegal; (ii) unless the reference to arbitration specifically so requires the arbitration is not bound to deal with each claim or matter separately but can deliver a consolidated award ; (iii) unless the contrary appears the court will presume that the award disposes finally of all the matters in difference ; (iv) where an award is made de-praemissis the presumption is that the arbitrator intended to dispose finally of all the matters in difference and his award will be held final if by any intendment it can be made so and (v) the silence of the award as regards a particular claim must be taken to be intended as a decision rejecting the claim to that relief. Vide majority decision in Bungo Steel Furniture (Pvt.) Ltd. v. Union of India : [1967]1SCR633 (4) if an arbitrator in deciding a dispute before him does not record his reasons and he does not indicate the principles of law on which he has proceeded the award is not on that account vitiated. It is only when the arbitrator proceeds to give his reasons or to lay down principles on which he has arrived at his decisions that the Court is competent to examine whether he has proceeded contrary to law and is entitled to interfere if such error in law is apparent on the face of the award itself. The law enunciated in Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., Indore : [1967]1SCR105 (5) again was that the arbitrator is not bound to give a separate award for each claim but can give a lump sum award. Vide M/s. Allen Berry and Co. Private Ltd. v. The Union of India, : [1971]3SCR282 (6), as the parties choose their own arbitrator to be the Judge in the dispute between them, they cannot, when the award is good on the face of it, object to the decision either upon the law or the facts. thereforee, even when an arbitrator commits a mistake either in law or in fact in determining the matters referred to him, but such mistake does not appear on the face of the award or in a document appended to or incorporated in it so as to form part of it, the award will neither be remitted nor set aside notwithstanding the mistake.

(8) The partnership between the parties here was dissolved on 12-10-1953 and it is undisputed that on that date the defendant left the firm and the books of account remained thereafter under the exclusive control of the plaintiff. In the circumstances Shri Suri was required to decide what amount was owed by which party on the date of the dissolution and he has given a clear-cut verdict on the point. His decision in awarding Rs. 27)860 to the defendant suffers from no legal infirmity and is, to that extent, plainly unassailable.

(9) Shri Suri has awarded interest to the defendant on Rs. 27,860 at the rate of 5 per cent per annum from the date of dissolution of the firm to the date of his decision and he has allowed future interest on the full decretal amount including costs and arrears of interest up to date from the date of decision to the date of realisation. The plaintiff has urged in his objection-petition that the decision regarding interest is had in law and is, thereforee, liable to be set-aside. No legal infirmity in the award on the subject of interest has, though, been particularly stated.

(10) That Shri Suri's award in the matter of interest is not entirely in accordance with law is conceded even by the defendant's counsel. Vide section 29 of the Arbitration Act where the award is for the payment of money the Court may in the decree order interest from the date of the decree at such rate as the Court deems reasonable to be paid on the principal sum as adjudged by the award and confirmed by the decree. It is not within the competence of the arbitrator to allow interest after the date of the decree. The plaintiff's counsel has not supported Shri Suri's decision again as to interest being payable by the plaintiff on the amount of interest and costs from the date of the decision to the date of the realisation as ordered in the award. To the aforesaid extent the award shall have to be modified.

(11) The counsel for the plaintiff has urged that the referee had no authority to award interest even pendente life. The suit was for partnership accounts and the plaintiff had claimed interest on the amount as might be found due to him. In a suit of this nature after the accounts have been gone into the plaintiff rather than the defendant may be found owing money to the opposite party and in that event a decree for the amount due to him may be passed in favor of the defendant subject to payment of the requisite court fee. If the plaintiff had succeeded in showing that some amount was due to him he could have been held entitled to payment of interest on the said amount and there is no reason why the defendant who occupied the same position as the plaintiff as a partner in the firm should not get interest when the referee has found that he has a right to recover Rs. 27,860.00 from the plaintiff. Because the entire dispute between the parties was referred to the arbitrator he had jurisdiction to award interest for the period the litigation remained pending between the parties. The Supreme Court held in Union of India v. Bungo Steel Furniture Private Ltd. : [1967]1SCR324 (7) that the principle of section 34 of the Code of Civil Procedure can be applied by the arbitrator for awarding interest in cases where it could be allowed by the court having jurisdiction in the matter provided that the question of interest had been referred to him. Vide the State of Madhya Pradesh v. M/s. Saith and Shelton (P) Ltd. and others : [1972]3SCR233 (8) where all the disputes including a claim for payment of the amount with interest is referred to the arbitrator, the arbitrator can award interest during the pendency of the arbitration proceedings. The reference in this case was indeed comprehensive with no part of the controversy kept back from the referee. thereforee, no fault can be found with the award of interest pendents lite. As a matter of fact the plaintiff did not plead in his objection petition that the issue of pendente lite interest did not constitute a part of the reference and he cannot in the absence of the necessary plea in the pleadings be heard on the point.

(12) Shri Tandon, the learned counsel for the defendant, has contended that the award made by the referee is final and the objections taken up by the plaintiff are not maintainable also because he is estopped by his conduct from raising them. The parties appointed Shri Suri no doubt as a referee, but they did not say like in the case of Shri S. B. Capoor that the decision arrived at by him would be binding on them. Neither the Code of Civil Procedure nor the Arbitration Act, defines the sphere of powers and functions of a referee and Shri Suri was not a referee of the type envisaged by section 20 of the Evidence Act. The defendant would like me to treat the award as adjustment of the suit under Rule 3 of Order Xxiii of the Code of Civil Procedure and to pass a decree in conformity with its terms. On the other hand, it has been contended on behalf of the plaintiff that as held in Sitaramji Maharaj v. Ramnath Singh : AIR1961Pat448 (9), Moradhwaj v. Bhudar Das : AIR1955All353 (10) and Abdul Rahman Sahib v. Muhammad Siddig and another : AIR1953Mad781 (II) where an award is made on reference without the intervention of the Court in a pending suit it cannot be regarded as an adjustment of the suit unless all the parties consent to it, after the same has been made. The reference in this case was made under the orders of the Court and the proviso to section 47 in the light whereof the cases relied upon by the plaintiff were decided will not in terms apply to it. But there is no gainsaying the fact that the award has not won the approval of both the parties, the plaintiff has serious objections to its validity. The plaintiff's agreement to the making of the reference to Shri Suri cannot be regarded as tantamount to his consent to the award. The award cannot as such result in the adjustment of the suit.

(13) The terms of reference made it abundantly clear that Shri Suri was to decide the dispute between the parties and that too in the light of the evidence placed before him. Vide section 47 of the Indian Arbitration Act the provisions of the said Act apply to all arbitrations and to all proceedings there under 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. No facts or circumstances have been brought to my notice as should place the arbitration in question beyond the pale of section 47, or, for the matter of that, the other relevant provisions of the Arbitration Act. Shri Suri gave his decision after going through the firm's books of account and other documents on record and after hearing the parties. His decision amounted, in the eye of law, to an award as defined by clause (b) of section 2 of the Arbitration Act. It is provided by section 21 in Chapter Iv of the Arbitration Act that where in any suit all the parties interested agree that any matter in difference between them in the suit shall be referred to arbitration they may at any time before judgment is pronounced apply in writing to the court for an order of reference and section 25 stipulates that the provisions of the other chapters shall so far as they can be m5de applicable apply to arbitrations under the said Chapter. There is no reason why in these premises the plaintiff should not have the right to challenge the award on any of the grounds open to him under the law. The issue is decided against the defendant.

(14) For the reasons stated the prayer of the defendant in this behalf (I.A. No. 2491/76) is granted and the award of Shri Suri dated 24-3-1975 is made a rule of the Court with the modification referred to above and a decree is passed in favor of the defendant for Rs. 27.860.00 with interest at the rate of 5 per cent per annum from 12-10-1953 to the date of this decree. The plaintiff shall also be liable to pay interest on the principal amount of Rs. 27,860 at the rate of 6 per cent per annum from the date of this decree till realisation. The costs of either party shall be borne by itself. On She foregoing terms Suit No. 86 of 1969 stands disposed of.