IN THE HIGH COURT OF GUJARAT AT AHMEDABAD CIVIL REVISION APPLICATION No 2044 of 1996 For Approval and Signature: HON'BLE MR.JUSTICE P.B.MAJMUDAR ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgment? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals? -------------------------------------------------------------- MALPATI SEVASANGH Versus GUJARAT STATE KHADI & VILLAGE INDUSTRIES BOARD -------------------------------------------------------------- Appearance: MR GT DAYANI for the Petitioner. .......... for Petitioner No. 2-25 M/S.VYAS ASSOCIATES for Respondent No. 1 .......... for Respondent No. 2-24 Mr.U.R. Bhatt, Assistant GOVERNMENT PLEADER, for Respondent No. 25 -------------------------------------------------------------- CORAM : HON'BLE MR.JUSTICE P.B.MAJMUDAR Date of decision: 15/04/2004 ORAL JUDGEMENT 1. Whether the Court is bound to accept the Award of the Arbitrators in a pending suit, in which the parties, inter se, outside the Court, independently and without the aid of the Court, decided to refer the dispute to Arbitrators and what is the effect of such Award if one of the parties is not willing to accept the same as a compromise under Rule 23 Rule 3 of the Code of Civil Procedure, is the question which is required to be decided by this Court in the present revision application. 2. Respondent No.1, Gujarat State Khadi & Village Industries Board, is the original plaintiff of Summary Civil Suit No.191 of 1983, which is pending in the City Civil Court at Ahmedabad. The said suit is filed for recovery of certain amount and the present applicants are defendant Nos. 1 and 2 in the said suit. The said suit has been filed by the plaintiff to recover Rs.2,78,54,408.47 Ps., along with the interest thereon. In this revision, we are not concerned with the merits of the aforesaid suit in any manner. During the pendency of the said suit, the parties to the suit, on their own volition, decided to refer the said dispute to two Arbitrators. Accordingly, the parties, without the intervention of the Court, decided to approach the Arbitrators in connection with the dispute in question. It is required to be clarified that the parties went to the Arbitrators in a pending suit, which is filed by the plaintiff to recover the aforesaid amount, and, it seems that the Arbitrators gave their Award on 10.12.1994. By the said Award, the Arbitrators recommended that the State Government may pay some grant to the defendants and the plaintiff-Board shall withdraw all civil and criminal cases which are filed by the plaintiff against defendant No.1-Sevasangh. The plaintiff-Board, subsequently, passed a Resolution, in its meeting on 28.1.1985, showing the willingness to accept, both the interim Award as well as the final Award. The Resolution of the Board is produced at pages 45 and 46 in the compilation. Since the suit of the plaintiff is already pending for final disposal, on behalf of the petitioners-original defendants 1 and 2, an application was submitted before the trial court at Exhibit 222. The said application is also produced along with the documents, annexed with the revision memo, in the compilation. The said application was given by the defendants by resorting to the provisions of Order 23 Rule 3 of the Code of Civil Procedure. In the said application, it is averred by the defendants that the plaintiff and the defendants agreed on 11.2.1994 to refer the subject matter to the Arbitrators and that the subject matter of the suit, along with the other subject matters, were referred to the Arbitrators for their decision and under the circumstances, the claim of the plaintiff in the suit stands fully adjusted in terms of the Award / Compromise as per the Award of the Arbitrators dated 10.12.1994 and as per the same, the plaintiff should withdraw the said suit in terms of the said Award. It is also stated in Exhibit 222 that since the plaintiff has not withdrawn the suit, the defendants are filing application under Order 23 Rule 3 of the Code of Civil Procedure, with a request that the court may accordingly pass a decree and it is also requested that the suit claim be treated as satisfied in terms of the Compromise / Award dated 10.12.1994 and to pass a decree accordingly. 3. The application was resisted by the original plaintiff on various grounds. By its reply at Exhibit 229, the plaintiff-Board contended that the application of the defendants does not satisfy the requirements of Order 23 Rule 3 of the Code of Civil Procedure and, therefore, such application was not maintainable. It is also the case of the plaintiff that the alleged agreement regarding referring the dispute to the Arbitrators is dated 11.2.1994, but in view of the provisions of Chapter IV of the Arbitration Act, 1940, in a pending suit, the reference can be made only in accordance with the provisions of the said Chapter. It is also averred that the Arbitrators have not followed the procedure, as required under the Arbitration Act. It is also averred that the Award was not published within a period of four months from the date of entering into the reference. It is also the say of the plaintiff that no stay was granted under Section 34 of the Arbitration Act. It is stated by the plaintiff in its reply that both the Arbitrators, one Zinabhai Darji as well as one Arvindbhai Buch, both were Trustees of defendant No.1-Trust and on that ground, the Award is vitiated. It is also the say of the plaintiff that the Arbitrators should have functioned in a quasi-judicial manner and that, their enquiry should not have been a slipshod one. The Arbitrators had not even heard the matter in an appropriate manner. 4. The learned trial Judge, after hearing both the sides, at length, rejected the said application of the defendants at Exhibit 222, and, accordingly, the trial court has decided not to accept the said Award on record for the purpose of passing a decree under Order 23 Rule 3 of the Code of Civil Procedure. It is the aforesaid order, which is impugned in the present revision application at the instance of the original defendants. 5. The trial court, while deciding the said application, came to the conclusion that since the compromise is not signed by both the parties, the same cannot be accepted. The trial court also came to the conclusion that, in the instant case, the defendants have not prayed before the Court that though the time has not been extended by the parties, the parties willingly took part in the arbitration proceedings without any demur and that this is a fit case for extension of time. The trial court has also found that as per the requirements of Order 23 Rule 3 of the Code of Civil Procedure, before recording the satisfaction, the signature of the plaintiff is a must in view of the provisions of the Code of Civil Procedure. Under the circumstances, the application of the defendants at Exhibit 222 for passing a decree under Order 23 Rule 3 of the Code of Civil Procedure is rejected by the City Civil Court. It is the aforesaid order, which is impugned at the instance of the original defendants in the present revision application. 6. Mr.Dayani, who is appearing for the original defendants in the suit, submitted that, since both the sides had agreed to refer the dispute to the Arbitrators, and since it is an Award given by the arbitrators, the trial court should have accepted the same by considering the said Award as an agreement / compromise in the suit and should have passed a decree accordingly. It is also argued by Mr.Dayani that since the original agreement for referring the dispute is signed by the parties, it is not necessary that, even at the time of presenting the said Award before the Court for the purpose of recording the agreement / compromise, such application is also required to be signed by the partes, as, according to Mr.Dayani, it is enough if it is proved that the original agrement was referred with the consent of both the sides and what is required is the signature at the initial stage of referring the dispute. Mr.Dayani also submitted that the plaintiff-Board itself, by its conduct, accepted the said Award, both interim and final Award, as, a Resolution was passed. Under the circumstances, now it is not open for the plaintiff-Board to back out from the said stand and to contest the suit on merits, again. It is also submitted by Mr.Dayani that, in any case, the trial court should have come to the conclusion that the claim of the plaintiff is satisfied in view of the Award of the Arbitrators and that appropriate order should have been passed in the main suit, by accepting such an agreement / compromise, which should be treated as an adjustment of the claim or satisfaction of the claim of the plaintiff. Mr.Dayani further submitted that appropriate order should have been passed by the Court by treating the said Award as an adjustment of the claim of the plaintiff by resorting to Order 23 Rule 3 of the Code of Civil Procedure read with Section 47 of the Arbitration Act, 1940. Mr.Dayani submitted that the trial court has committed an error of jurisdiction in not passing an appropriate order by recording the compromise, as contemplated by Order 23 Rule 3 of the Code of Civil Procedure. 7. Mr.D.D. Vyas, learned Advocate appearing for the original plaintiff-respondent No.1, on the other hand, submitted that, in a pending suit, the parties decided to go to Arbitrators on their own volition and without intervention of the Court in any manner. It is submitted by him that even the Arbitrators have not followed the procedure prescribed by the Act and has not given the Award within the stipulated time. It is submitted by Mr.Vyas that in a pending suit, if the parties, on their own volition, decide to refer the dispute to the Arbitrators, such Award cannot be pressed into service for recording as a compromise of the suit unless the parties agree to accept such Award as a compromise of the suit. He submitted that the Arbitrators have not decided any claim of the plaintiff and the claim of the plaintiff is not dealt with, in any manner, in the Award. He submitted that, looking to the nature of the procedure adopted, the plaintiff-Board is not willing to accept the same as a compromise between the parties and the plaintiff is not willing to accept the said Award. Mr.Vyas submitted that simply because the Board might have passed some Resolution subsequently to accept the Award itself is no ground, by which the plaintiff can be compelled to enter into a compromise, as contemplated by Order 23 Rule 3 of the Code of Civil Procedure. Mr.Vyas submitted that since the parties have referred the matter to the Arbitrators in a pending suit, without the intervention of the Court, such Award is not enforceable under Order 23 Rule 3 of the Code of Civil Procedure and the Court is not bound to pass a decree on the basis of such Award unless both the plaintiff and the defendants are agreeable for passing such an order, treating the said Award as a compromise. Both the sides have also cited various judgments in connection with the Award given by the Arbitrator in a pending suit without the intervention of the Court. 8. The principal question which requires consideration in this revision is whether the Court is bound to pass a decree, as contemplated by Order 23 Rule 3 of the Code of Civil Procedure on the basis of such Award, if one of the parties is not willing to abide by the said Award of the Arbitrators. 9. Considering the arguments of both the sides, it is, as such, not in dispute that, in a pending suit, the parties have decided to refer the dispute to Arbitrators without intervention of the Court in any manner. Under the circumstances, such Award is required to be treated as an Award as provided in the proviso to Section 47 of the Arbitration Act. It is not in dispute that so far as the Award of the Arbitrators is concerned, the same is governed by the Arbitration Act, 1940. The effect of such Award is, therefore, required to be examined in the light of the provisions of Section 47 of the Arbitration Act, 1940. Section 47 of the Arbitration Act, 1940 provides as under :- " ... ... ... 47. Act to apply to all arbitrations.-Subject to the provisions of Sec.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. ... ... ...." (emphasis supplied) Since the defendants have preferred the application at Exhibit 222 for the purpose of recording compromise, as provided by Order 23 Rule 3 of the Code of Civil Procedure, reference is also required to be made to Order 23 Rule 3 of CPC, which provides as under ;- " ... ... ... ORDER XXIII WITHDRAWAL AND ADJUSTMENT OF SUITS xxx xxx xxx 3. Compromise of suit.-Where it is proved to the satisfaction of the Court that a suit has been adjusted wholly or in part by any lawful agreement or compromise in writing and signed by the parties or where the defendant satisfies the plaintiff in respect of the whole or any part of the subject-matter of the suit, the Court shall order such agreement, compromise or satisfaction to be recorded, and shall pass a decree in accordance therewith so far as it relates to the parties to the suit, whether or not the subject-matter of the agreement, compromise or satisfaction is the same as the subject matter of the suit. Provided that where it is alleged by one party and denied by the other that an adjustment or satisfaction has been arrived at, the Court shall decide the question; but no adjournment shall be granted for the purpose of deciding the question, unless the Court, for reasons to be recorded, thinks fit to grant such adjournment. Explanation.-An agreement or compromise which is void or voidable under the Indian Contract Act, 1872 (9 of 1872) shall not be deemed to be lawful within the meaning of this rule. ... ... ...." 10. Mr.Dayani submitted that the said application, therefore, may be treated as an application given as per the proviso to Section 47 of the Arbitration Act, 1940 read with Order 23 Rule of CPC. It is submitted by Mr.Dayani that since it is an Award given by the Arbitrators, it should be treated differently from the ordinary consent terms submitted by the parties and such Award is, therefore, required to be treated separately as it is an Award given by expert Arbitrators and their Award should be treated in the nature of a verdict given in a quasi-judicial proceedings. It is, therefore, submitted that it is not necessary that while presenting the Award, the party must disclose before the Court that both the sides are willing to abide by the Award of the Arbitrators and the same may be treated as a compromise in the suit. It is submitted by Mr.Dayani that simply because the plaintiff has not signed the consent terms, as provided by Order 23 Rule 3 of the CPC for the purpose of accepting the said Award, the Court can still pass a decree on the basis of such Award, and especially when the plaintiff has affixed the signature at the time of reference to Arbitrators, it is not necessary that, again, such signature should be there before recording the Award as adjustment / compromise. To substantiate his say on this point, Mr.Dayani has relied on the decision in Malek Bavaji Amarkhan v. Bai Sonabai and ors, XIX GLR 482. So far as the aforesaid case is concerned, the same is prior to the amendment of the Code of Civil Procedure in connection with Order 23 Rule 3 of CPC. The words "... in writing and signed by the parties ...." are inserted by Section 74 of Act 104 of 1976, which has come into effect from 1.2.1977. In the said decision, this Court has considered the effect of the Award of an Arbitrator, wherein the parties have referred a dispute or difference to an Arbitrator without an order of the Court. Dealing with the said question, it has been observed by the learned Judge in paragraphs 2 and 3 as under :- " ... ... ... 2. It is settled position of law that where in a suit the parties have referred their difference to the arbitration without an order of the Court and an award is made, a decree in terms of the award can be passed by the Court under Order 23 Rule 3 of the Civil Procedure Code (Vide : Chambasappa Gurushantappa Hiremath v. Basadingayya Gokarmaya Hiremath (1927) 51 I.L.R. 903 and Modi Narandas Chhaganlal v. Jamnadas Maneklal and Another, (1969) 10 Guj. L.R. 210) Mr.Shah, learned Advocate for respondents Nos. 1(b) to 1(h) does not dispute this proposition of law. Mr.Shah has, however, tried to support the judgment of the learned District Judge on the ground that under proviso to sec.47 of the Arbitration Act the Court can accept the compromise only if the consent is given by the parties at the time when the Court is called upon to consider whether the award should be accepted as an adjustment or a compromise. He also supported the view of the learned District Judge that inasmuch as no permission was granted to Ajubai to sign this award as alleged by the plaintiff, the agreement, if at all there was any, is voidable as prescribed under Order 32 Rule 7(2) of the Civil Procedure Code, and since Ajubai avoided the agreement, the trial court was justified in dismissing the application of the petitioner herein, who was the original plaintiff. 3. I am afraid that none of the contentions of Mr.Shah can sustain the order of the learned District Judge. It is no doubt true that V.R. Shah, J. who decided the case of Modi Narandas v. Jamnadas (supra) observed in paragraph 8 in his decision that the language of the proviso to sec. 47 of the Act is very clear and the consent should be given by the parties at the time when the Court is called upon to consider whether the award should be accepted as an adjustment or a compromise. V.R. Shah, J. however, refrained from entering into any detailed discussion of this question because in his opinion it is not necessary to consider the interpretation of the language of the proviso to sec. 47 as it did not apply to the facts of that case. Except this observation of the leanred Single Judge, I do not think that Mr.Shah can make this proposition good in view of the line of decisions of the Bombay High Court. The jurisdiction to record an adjustment, though not agreed to by the other party, is not taken away (vide : Ruttonsey Lalji v. Pooribai, I.L.R. 7 Bom. 304 and The Coculdas Gulabdas's Manufacturing Company v. James Scott, (1892) I.L.R. 16, Bom. 204). This Bombay view is incorporated in Rule 3 of Order 23 of the Civil Procedure Code. Rule 3 provides as under :- "3. Where it is proved to the satisfaction of the Court that a suit has been adjusted wholly or in part by any lawful agreement or compromise, or where the defendant satisfies the plaintiff in respect of the whole or any part of the subject matter of the suit, the Court shall order such agreement, compromise or satisfaction to be recorded and shall pass a decree in accordance therewith so far as it relates to the suit." The rule does not confer any discretion on the Court and when it is established that a suit has been adjusted either wholly or in the part by a compromise, it is the duty of the court to record it and pass a decree in accordance therewith save and except in the cases where such recording would result in substantial failure of justice. The Andhra Pradesh High Court has also taken the same view and a Division Bench consisting of S. Obul Reddi and Venkitarama Sastry, JJ. held in The Andhra Mennonite Self Supporting Church Society v. Sundramma and Others, A.I.R. 1973 A.P. 19 that the consent under proviso to sec. 47 of Arbitration Act means consent to the reference and also to the award and no further consent to the terms of the Award at the time of recording the compromise under Order 23 Rule 2 is necessary. The Division Bench, speaking through Venkatrama J., observed in paragraph 8 as under : "Now the only question is whether the consent to the award should be regarded as a consent given to the compromise itself or whether there should also be a consent to the terms at the time when the Court takes up for consideration the application under Order 23 Rule 3 C.P.C. on the question. We are bound by the Full Bench decision of the Madras High Court in Abdul Rahman v. Muhammad Siddiq, A.I.R. 1953 Madras 781 (FB) in which it was decided as follows :- "We are accordingly of opinion that under the proviso to Sec. 47, an arbitration award obtained otherwise that 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 provisions of Order 23 Rule 3; and that the decision in Aruuga Mudaliar v. Balasubramania Mudaliar, A.I.R. 1945 Mad. 294 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 passed thereon could be passed under Order 23 Rule 3." ... ... ...." The learned Judge, therefore, came to the conclusion that where, in a suit, the parties have referred the dispute to the Arbitrator without an order of the Court, a decree in terms of the Award can be passed under Order 23 Rule 3 of the Code of Civil Procedure. The Court has also further observed in paragraph 5 that while recording the compromise, the Court has to record a finding on the question whether there was or was not any lawful agreement to compromise or adjust the suit. At this stage, reference is also required to be made to the decision of this Court in Modi Narandas Chhaganlal v. Jamnadas Maneklal & another, X GLR 210. While examining the scope of the provisions of Order 23 Rule 3 in connection with the acceptance of an Award by the parties, it has been held by this Court as under in paragraph 6 :- " ... ... ... 6. In the instant case the parties have accepted the award after it was given. It is necessary to consider as to what is the effect of the acceptance of such an award by all the parties to the suit. Does it remain an award even after all the parties to the suit accepted it ? In my opinion, it does not remain as award as such, that is, it does not remain a decision of an arbitrator. By reason of the fact that all the