Administrator, Hindusthan Cables Employees Co-operative Multipurpose Society Ltd. and anr. Vs. Jatindra Kumar Das Choudhury and ors. - Court Judgment

Sinha, C.J.

1. The facts in this case art shortly as follows: The respondent Jatindra Kumar Das Choudhury was employed by the Hindustan Cables Ltd. of Rupnara-yanpur, Burdwan (hereinafter referred to as 'company'). Sometime in 1956 the employees of the company started a multipurpose co-operative society known as the Hindustan Cables Employee's Co-operative Society Ltd which was registered under the Co-operative Societies Act (hereinafter referred to as the 'society'). The said respondent was appointed the Secretary of the said Society from its very inception The statutory auditor employed by the Registrar of Co-operative Societies, West Bengal, took the audit of the said Society for the year 1960-61 and made his report dated the 26th of March 1963 On the basis of the said audit report, the Registrar dissolved the Managing Committee of the Society on the ground of mismanagement and appointed an administrator who was the Managing Direc-tor of the company. On or about the 6th of March 1963 the administrator delegated his powers to B. R. Ghose who filed a dispute against the said respondent under Section 86 of the Co-operative Societies Act. It will be important to note the particulars of the claim made which was stated in the claim petition to be as follows:

(i)Amount realised by Sri J. K Das Choudhury from Policy holders against their debts to the Society on a/c of premium advance made out of fund of the Society but not yet paid to the Society.

Rs. 1224.94(ii)Outsanding debit balance as on 30-6-62 on a/c of Insurance premium advance against his own insurance policy.

Rs. 534.48(iii)50% shares of commission earned on selling of Insurance Policies.

Rs. 1158.48(iv)Debit balance lying against his advance a/c Rs. 1942.35(v)Unadjusted advance lying in canteen a/c against himRs. 435.00(vi)Cash balance of canteen section Wing with him which he ought to have deposited with the Society.Rs. 151.93

Rs. 5447.33

2 The Registrar, Co-operative Societies referred the matter to Shri M. M. Kirtania the district auditors, who acted as an arbitrator. So far as items (v) and (vi of the claim are concerned, being the 'canteen account' the said respondent J. K Das Choudhury made a counter claim. This will appear from the order-sheet of the arbitrator and may be set down as follows:

'As regards cash balance of canteen section from 5-2-62 to 10-2-62 amounting to Rs. 151-93 nP Sri J. K Das Choudhury stated that the amount was given to some Mukherjee of final inspection for treatment of his eyes -- which was subsequently realised from him and made over to Sri Sadhan Das Gupta in presence of Shri Rajat, Senior Accountant H. C L for crediting to the canteen section and if required he can produce evidence to that effect.

As regards Rs. 435 due by him he stated that first he submitted voucher for his Scooter allowance which was subsequently changed beina refused the Scooter allowance and he submitted separate voucher for adjusting the amount from his supervision allowance etc.

As regards Canteen account Shri J. K. Das Choudhury stated that the Canteen account has not yet been completed, many vouchers are still to be finalised and adjusted. He submitted a Voucher amounting to Rs 9168-81 nP. to the H. C. L. Ltd. of which amount Rs 3136-52 nP has been recommended to disallow and Rs. 6032-29 nP has been recommended for payment by the company. He further stated that the whole amount has actually been expended and if the amount be reconciled or adjusted properly -- no amount will he pavable to society by him; on the contrary he may get something from the society. The head of account may be in-terchanged.'

3. It will thus be seen that there was a clear counter-claim by the said respondent against the Society. On the 14th of August, 1963 the arbitrator made an award by which he directed the said respondent to pay to the Society the sum of Rs. 2917-75 nP. which is the aggregate of the claims under (i), (ii) and (iii) and also Rs. 1942-55 nP. which is the amount of claim in Clause (iv) totalling Rs. 4860-30 nP., but the arbitrator held that with regard to the claim on the canteen account, namely items (v) and (vi), it was evident to him that the canteen account had not yet been completed and finalised and required further scrutiny. He stated that in this state of circumstances he could not give any verdict on this account. He, therefore made the following award:

'It is hereby decreed that the defendant Shri J. K Das Choudhury, Ex. General Secretary of the Hindustan Cable Employees' Co-operative Multipurpose Society Ltd. shall pay to the plaintiff Society Rs. 2,917-75 nP. on account of Insurance and Rs. 1942-55 nP. on account of his Advance account -- thus totalling Rs. 4860-30 nP. on or before 31-12-63 failing which the amount due before that date shall carry interest @ Rs. 6 1/4% per annum from 1-1-64 till final realisation.

It is further ordered that the Canteen Section Account should be finalised within the aforesaid date i.e. 31-12-63.'

4. The canteen account has also a bearing on the other items. With regard to Clause (iv), namely advance account, the award shows that the said respondent had stated that he had drawn some amount for meeting the expenses of the canteen section. The award further shows that as regards Clauses (i) and (ii) of the claim the said respondent took up the defence that he might have expended the amount for canteen section. The only item which does not seem to be connected with the canteen account is Clause (iii) of the claim.

5. The first question that arises, therefore, is as to whether the arbitrator was jus-tified in making a partial award ignoring the claim on the canteen account, which award was not an interim award, but a final award for the sum of Rs 4860-30 nP and which, immediately thereafter was sought to be realised by execution. The learned Judge in the Court below has held that such a partial award is not permissible.

6. The next point to be considered is the claim in respect of the insurance business. The position with regard to this item is as follows: The Society wanted a licence to act as an insurance agent from the Life Insurance Corporation Ltd. The Life Insurance Corporation would not grant a licence to a corporation but was ready to grant it to an individual. The Society, therefore evolved a scheme whereby the licence would be taken out by J. K. Das Choudhury but that the commission would be divided equally between him and the Society. The Society approved of this arrangement at its annual general meeting and its records clearly show that it considered itself to be carrying on the agency business. One of the conditions of the licence given to J. K. Das Choudhury was that he must not share his commission with any other person. Also, as I shall presently point out, no one is permitted by law to carry on business as an insurance agent except an insurance agent who has been duly licensed. The defence of the said respondent was that he had paid Rs. 780 to the Society but thereafter realised that it wat unlawful to share the commission and so he did not credit the Society with any further commission. The arbitrator held that the respondent had not informed the Society of this limitation on what it called 'private sharing', laid down by the Life Insurance Corporation, and thereby deprived the Society of the opportunity to revise the agreement and therefore, the said respondent must pay the amount of Rs. 1158-43 nP on this account. The learned judge in the court below has held that the agreement to share commission itself being unlawful, the claim cannot be upheld. We will have to consider whether this is correct and whether the learned Judge was entitled to apply this principle with regard also to the Clauses (!) and (ii) of the claim.

7. First of all, I shall deal with the question of insurance agency. The first provision of law to be considered is Section 40(1) of the Insurance Act (Act IV of 1938. It is in the following terms:

'40. Prohibition of payment by way of commission or otherwise for procuring business.

(1) No person shall, after the expiry of six months from the commencement of this Act, pay or contract to pay any remuneration or reward whether by way of commission or otherwise for soliciting or procuring insurance business in India to any person except an insurance agent or a principal, chief or special agent.' This section has been made applicable to the Life Insurance Corporation by G. S. R. 734 dated 23rd of August 1958 read with Section 43(2) of the Life Insurance Corporation Act. 1956. Section 42 of the Insurance Act provides for the licensing of insurance agents The relevant provision is as follows:

'(1) The Controller or an officer authorised by him in this behalf shall, in the prescribed manner and on payment of the prescribed fee which shall not be more than ten rupees issue to any person making an application in the prescribed manner a licence to act as an insurance agent for the purpose of soliciting or procuring insurance business....'

8. A licence can, not only be granted to an individual but also to a company or a partnership firm. In the present caw what had happened was that the Society approached the L. I. C. for being appointed as an insurance agent but the L. I. C. said that they were not issuing licences to corporations but only to an individual. I am not concerned in this case with the question as to whether this decision was in accordance with law. The fact is that the Society was never granted a licence as an insurance agent, so that the prohibition under Section 40(1) applied to it. What it attempted to do was to Ret round this provision by carrying on business as an insurance agent through an arrangement made with the said J. K. Das Choudhury whereby the latter would take out a licence and then the insurance commission would be split up between the Society and him. This agreement has been held by the learned Judge in the Court below as being illegal, or as calculated to de-feat a provision of law and as such against public policy. We agree with him, Several arguments are advanced in respect of this point which I shall now enumerate. Firstly, it is argued that the word 'person' in Section 41 means the insurer. In other words, it was only the insurer, in this case the L. I. C., who could not pay remuneration or reward by way of commission to any person excepting an insurance agent. In our opinion, this argument cannot be accepted In Section 2(9) the word 'insurer' has been defined. If it was meant to impose a limitation upon insurers only, then under Section 40(1) the word 'insurer' would have been used instead of 'any per-son.' Wherever in the Insurance Act there is any provision regarding an 'insurer', this is the procedure followed, for example see Sections 3A, 4, 5, 6, 13 etc.

9. Next it is argued that Section 40(1) ore-vents any person being paid a commission excepting a licensed insurance agent. But once the insurance agent receives commission, he can do whatever he likes with this commission and there is no law prohibiting him from sharing it with any person or body. Again, this is an argument which cannot be accepted, because we must see what really has happened in this case. The agreement between the Society and J. K. Das Choudhury is not that the latter will act as the insurance agent and the Society will merely share the money after he had received it from the insurer. The agreement is that it was the Society that would be considered as carrying on the insurance agency, but through the said J. K. Das Choudhury. In this connection, I may refer to certain letters which have been annexed to the supplementary affidavit-in-opposition affirmed by one Bhaba Ranian Ghose, the respondent No. 2, dated the 5th March 1965. It appears that on the 18th March, 1960 the Managing Director of the company wrote to the Zonal Manager of the L. I. C., Calcutta, proposing that on the introduction of the facilities of salary savings scheme the company, the employees of the company may be enabled to place their proposal for life Insurance under Salary Savings Scheme through the Society. In answer to this letter, the Divisional Manager wrote to the Managing Director of the company as follows in his letter dated 21st/25th 1960:

'In view of the difficulties as stated in your letter under reply we can entertain the appointment of Hindustan Cables Employees Co-operative Multipurpose Society to work as service cum collection agent provided the following conditions are fulfilled

Firstly the Society will have to nominate one of the members to solicit and procure life insurance business from the members of the Society

Secondly, the nominee will have to obtain a license from the Controller of Insurance to work as an agent and he will be appointed by the corporation as an insurance agent to procure life insurance business for the corporation from the members of the co-operative society of which he is a member; for all practical purposes, it is the Society to which we shall look for procuring business and servicing of the business record.

Thirdly, the nominee agent is only the medium through which we shall receive the business and pass on the first year's commission What share if any of the first year's commission (including bonus commission) the nominee agent will be allowed to retain for himself is a matter which we leave to the Society to decide.'

10. We find next from the minutes of the third annual general meeting held on the 26th June 1960, the following resolutions:

'E. Agency

Taken by the Secretary, Sri J. K. Das Choudhury, from L. I. C. to sell Insurance Policy and to sell National Savings Certificates of Government of India, appointed by the Managing Committee, is to be approved.

Adopted unanimously '

11. In the minutes of the executive committee meeting held on 15-7-60, we find the following:

'4. Agency.

As per the provision of resolution E of the General meeting Shri J. K. Das Chou-dhury is authorised to deal with all agencies to be undertaken by the Society.'

12. It is quite obvious that it was the Society that was supposed to be carrying on the agency business. In fact, the award shows that the case made out on behalf of J. K. Das Choudhurv was that he was under the impression that the sharing of commission was legal and later on having come to realize that it was illegal he withheld pay-ment.

13. The next branch of argument was that, actually speaking, there was no sharing of the commission because the entirety of the commission was spent for the purposes of the members of the Society Reference was made to the minutes of the Executive Committee meeting on 15-7-60 which is as follows:

'Distribution of Agency Commission.

Shri J. K. Das Choudhury is hereby authorised to make necessary expenditure not exceeding 25% of the income on a/c of agency commission for establishment purpose. The accounts of such agency will be kept distinct from Co-operative general fund. In addition he will be allowed to spend not more than 25% above commission for the entertainment of guests and parties related to the new business. The remaining 50% of the commission will be kept separate for a fund to help those as mentioned in the Society's circular No. GS-5/50/60 dated 2-6-60. The fidelity continued in the above circular will however be restricted to the members only.'

14. This, however, gives a misleading picture, because throughout the proceeding the case was run on the footing that according to the agreement between the Society and the said J. K. Das Choudhury the commission was to be split up in half. The auditor's report at pages 93-94 of the paper-book shows that the Society's share in the commission was 50%. Even assuming that the whole of the commission was to be spent on behalf of the Society, this does not affect the position. In that case, the position is still worse, because it amounts to this that the insurer was to pay the entire commission to a person other than the licensed insurance agent.

15. According to the provisions of the licence issued to J K. Das Choudhury, he is precluded from sharing his commission with any other person. What he was doing was, therefore, in violation of the terms of his licence. This prohibition by which insurers can only employ licensed insurance agents for procuring business and only pay commission to them, and the form of the licence which prevents a sharing of the commission, are all calculated to protect the public and are based on public policy. It is well established that where a statute prohibits a thing nol merely for the purpose of revenue but also for the protection of the public, a contract in contravention of such prohibition shall be void. See Heyman v Darwin Ltd., (1942 1 All ER 337 (343, Anderson v. Daniel, (1924 1 KB 138 (140 Under Section 10 of the Indian Contract Act, read with Section 23, an agreement, if calculated to defeat any provision of law is void

16. In our opinion, therefore, the claim for 50% of commission received by the licensed insurance agent is calculated to defeat a provision of law and is, therefore, void and unenforceable. This, however, relates only to Clause (iii) of the claim. There is no illegality so far as Clauses (i), (ii) and (iv) are concerned. In respect of these items however, he has not taken into consideration the counter claim made by J. K. Das Choudhury on the canteen account.

17. I now come to the next question, as to whether the arbitrator was entitled to decide a part of the claim and make a partial award leaving out the canteen account. It must be observed that so far as J. K. Das Choudhury is concerned, he made a counter claim, so that if his counter-claim succeeded then there might be nothing due from him. In spite of this, the arbitrator left out the canteen account altogether. Brieflv therefore, the position comes to this: Six headings of disputes were referred to the arbitrator These disputes were more or less connected with one another. The arbitrator decided disputes (i), (ii), (iii) and (iv) but left out the other items for future determination. The finding in the award is as follows:

'Canteen account.

It reveals that the defendant Shri J. K. Das Choudhury submitted a bill for Rupees 9168-81 nP. in two parts marking 'A' and 'B' to Hindustan Cables for payment as per terms and conditions. The local auditor of the H. C. L. on auditing the canteen section account held under objection Rs. 3136-62 nP. marking 'B' in page 14 of the audit report (Ext. 1 and the audit officer could not properly take the audit for want of books and records and he has to depend largely on the report of the local audit of H. C. L. I am of opinion that the local auditor of H. C. L. has got no authority to take the audit of a cooperative society and the dependance of audit officer on such audit is also a matter to be considered.

The audit officer has written in page 13 of his report (Ext. 1 that he made attempts to check up the books and records but reluctantly he had to give up as the people who kept the accounts were long since discharged and none was available to explain and to produce books, accounts and vouchers

The audit officer further stated in page 15 of his report (Ext. 1 that the defendant Shri J. K. Das Choudhury once collected Rs. 1908.80 nP. being sale proceeds and utilised for certain canteen expenses and kept unauthorised kutcha account for it. The audit officer remarks on it how far of such expenses are admissible has yet to be seen and the bona fide or authenticity of such expenses has to be established by Shri J. K. Das Choudhury. Till then the account should be treated as liability of Shri J K. Das Choudhury

It is evident from the above, that the canteen account has not yet been completed and finalised and requires further scrutiny in this state of circumstances I cannot give any verdict to that effect. Hence the award is as follows.....'

18. As a matter of fact, immediately upon the award being made it was sought to be executed as a decree This is possible because of the provision of the Bengal Cooperative Rules 1942 Rule 127 (1 runs as follows:

'In any dispute other than a claim in respect of any sum payable to or by a cooperative society, the award of the arbitrator or of the Registrar shall be enforceable by any civil Court having local jurisdiction in the same manner as a decree of such court upon application, as if it were a decree of the court.'

19. In such cases it is not necessary to file the award under Section 14 of the Arbitration Act, nor is it necessary to pass judgment on award under Section 17 of the Arbitration Act. Later on, a notice has been Riven that arbitration will take place with regard to the canteen account. Perhaps because of the pendency of the proceedings, nothing further has been done. The general principle is that an award must be a final decision in all matters referred for determination. In Ganesh Narayan v. Malida Koer, 1(1911 13 Cal LJ 399 the court observed -

'It is well settled that an arbitrator must be careful to see that his award is a final decision on all matters requiring his determination The obligation to decide depends upon the question whether the submission requires that all or only some of the matters in dispute are to be determined by him.....'

20. The underlined principle has been stated by the Privy Council in Makund Ram v. Saliq Ram, (1894 ILR 21 Cal 590 (PC) where Sir Richard Couch said as follows:

'The ground upon which an award which does not dispose of all the matters referred has been held to be invalid appears to be that there is an implied condition that it shall do so.'

21. There are, however, exceptions to this rule. For example, if the submission itself can be construed to mean that there should be more than one award then several awards may be justified. See Randall v. Randall (1805 7 East 81; Samuel v. Cooper, (1835 2 Add El 752. It may also be done by consent of parties (1894 ILR 21 Cal 590 (PC) (supra). In all cases of the invalidity of an award for want of finality, there is a clear omission either to decide the matter referred to arbitration at all or to decide it n a manner which finally determines it, Khanchand v. Kadumal, (1912 15 Ind Cas 819 (Sind). Where several issues are referred, failure to decide every issue jointly in the causes renders the award invalid. Kilburn v. Kilburn, (1845 13 M and W 671: Hayward v Phillips. (1837 6 LJKB 110: Wakefield v Lanley Rly. and Dock Co., (1865 12 IT 509. The principle has been mentioned in Nickels v. Hancock, (1855 7 De G. M. and G 300 (314 that where parties had contracted to be bound by the decision of the arbitrator on the whole and not in part, of the matters referred, it may so happen that regard being had to the peculiar nature of the claim, successive awards may be valid Where certain goods were deliverable in installments and each instalment constituted a separate contract, it was held that successive awards were possible. Bal Mukund v. Gopi Ram, (1920 24 Cal WN 775=(AIR 1920 Cal 565. In Gould v. Staffordshire, Potteries Waterworks Co., (1850 155 ER 92 Baron Parke observed:

'and this was contended for by analogy to the ordinary practice or submission to arbitration, where everything to be inquired into must be included in the award. But the ground for the rule is to be founded in the agreement of the parties to the submission, in which it is usually one of the terms that the arbitrator is to make but one award. That condition is implied in all cases, unless something to the contrary is either expressed in or may bp inferred from, the submission.'

22. In (1911 13 Cal LJ 399 Mooker-jee J. said as follows:

'It is well settled that an arbitrator must be careful to see that his award is a final decision on all matters requiring nil determination The obligation to decide depends upon the question whether the submission requires that all or only some of the matters in dispute are to be determined by him ..... The same rule has been adopted in the American Courte in a series of decisions ..... The position, of course, is different where the arbitrator is empowered to make one or more awards at his discretion as in Dowse v. Coxe (1825 3 Bing 20 ..... and the decision of this court in the case of Shoshemukhi Dabia v. Nobin Chunder, (1876 4 Cal LR 92 must be taken to fall within this class of cases. In the case before us, however, it was clearly the duty of the arbitrator to give a complete adjudication of the matters in controversy.'

23. The learned Judge in the court below has rightly pointed out that this also seems to be the position in case of arbitrations under the Bengal Co-operative Societies Act and the Rules made thereunder. On the materials before us, we are satisfied that there was a reference to arbitration of only one dispute which consisted of several items. It was never the intention of the parties, nor was it provided for in the order of reference made by the Registrar under Section 87 of the Bengal Co-operative Societies Act, that there should be several awards, which is exactly what the arbitrator attempted to do. This is not in accordance with law.

24. The learned Judge in the court below has proceeded in the following manner. In this particular case what happened was that there was a partial award made on 14th August 1963 and against it there was an appeal under Section 134 of the Bengal Co-operative Societies Act which was decided by Shri S. K Roy. Assistant Registrar, Co-operative Society. Burdwan. By order dated 21-1-64 the appeal was dismissed and the award confirmed. The learned Judge in the Court below made the following order.

'Let the impugned Award of the Arbitrator as confirmed by the appellate order be quashed by an order in the nature of certiorari and let respondents 1-3 be restrained from enforcing or giving effect to the same, in any manner whatever. The Rule is made absolute to this extent only, the other prayers being refused. The arbitrator shall be at liberty to make a fresh award in accordance with law in respect of the other items in the reference, excluding the 'Insurance a/c' which is founded on the agreement between the society and the petitioner for sharing the agent's commission.'

25. In our opinion, the proper order will be to remit the matter to the arbitrator under Section 16 of the Arbitration Act. Under the said provision, the court may remit the award for reconsideration by the arbitrator on such terms as it thinks fit. It is not disputed before us that this provision of law will apply to awards in a statutory refer-ence. We make it clear that we are not dis-turbing the order made in the court below so far as other matters are concerned, but we allow the appeal and vary the order mentioned above as follows: The application will be treated as an application under the Arbitration Act.

26. The order of the Court below is set aside, and the award is remitted to the arbitrator for reconsideration The arbitrator will now reconsider the award after bearing in mind that Clause (iii) of the claim is illegal and cannot be permitted and that he must give a complete award, by con-sidering the 'canteen a/c' namely items (v) and (vi) after considering how this claim affects other claims as put forward by the parties Until this award is made, the respondents are restrained from enforcing or giving effect to the impugned award in any manner whatsoever. The award shall he made within six months from the date of a copy of this order being served on the arbitrator There will no order as to costs

27. It is recorded as stated before us that the present Arbitrator is Sri N. Kirta-nia, Executive Officer Asansol, Wholesale Consumers' Co-operative Society Ltd., Bar-kat Ali Road, Asansol District Burdwan.

A.K. Mukherjea, J

28. I agree.