Case: Gobardhan Das Vs. Lachhmi Ram &amp; Others

2. The appellant entered into a partnership business with respondents 1 and 2 to carry on grain business. The appellant, who furnished the entire capital, was to have eight annas share in the profits, while respondents 1 and 2 were to get four annas each on the ground of contributing labour and skill. There was a dispute between the partners, the appellant alleging misappropriation of funds against respondents 1 and 2 to the tune of Rs. 35,000. By an agreement dated September 29, 1945, the dispute was referred to the arbitration of respondents 3 to 5, one of whom died during the pendency of the application for leave in the Patna High Court.3. The arbitrators made the award on Januarys 29, 1946, whereby they awarded Rs. 3,500 to the appellant against respondent 1 to be paid in certain instalments in default of which the appellant was entitled to realize the entire amount in lump sum. They also held that the money which was found due from respondent 1 under the "bahi khata" account in addition to Rs. 3,500 was remitted having regard to his "labour and poverty". They further held that whatever amount was found due against respondent 2 under the bahi khata account, the arbitrators awarded the entire amount to the appellant.4. The appellant filed an application on February 13, 1946, for setting aside the award although the same had not been filed in court. The two partners and the arbitrators were arrayed as opposite parties. Various allegations were made in the application against the arbitrators, the awards being characterised as illegal, arbitrary, dishonest and in excess of the power of the arbitrator. It was asserted that the respondents 1 and 2 were guilty of falsification of accounts and misappropriation of the funds of the business and that no proper taking of accounts an amount of Rs. 31,793/ 3/6 would be found payable by them to the appellant. The arbitrators filed a written statement in which they traversed all the allegation of the appellant and defended the award as being within the scope of the arbitration agreement. Respondent 1 also filed a written statement controverting the allegations of the appellant and denied that he was guilty of any falsification of accounts or embezzlement of funds. He totally denied his liability for any amount. On August 3, 1946, the appellant filed an application for withdrawl of his petition on the ground that it was premature. The Subordinate Judge allowed the application. The respondent 1 on the same day applied that a decree be passed in terms of the award, but this application was refused on the ground that the award should have been filed within the period of limitation.The respondent 1 filed a revision to the High Court of Patna against this order and the High Court set aside the order of the trial court and remanded the case to it with a direction to entertain the application of respondent 1 after giving a opportunity to the appellant to refile his objections to the award. Thereupon proceedings began afresh in the court of the Subordinate Judge and the appellant filed fresh objections on December 2, 1947, stating Inter alia that the arbitrators had no power to remit any portion of the liability found against respondents 1 and 2. The case was fixed for March 13, 1948. The appellants counsel asked for time but the application was refused and the court passed ex parte order on the same date making the award a rule of the court. The appellant filed an application under order IX, Rule 13 for setting aside the ex parte order but it was dismissed. The appellant thereupon filed two appeals in the High Court at Patna, one against the order pronouncing judgment in accordance with the award and the other against the order refusing to set aside the ex parte order. Both the appeals were dismissed by a common judgment dated the 8th November, 1949. Leave to appeal was granted to the appellant under Article 133(1) of the Constitution.

Court's reasoning:
5. A preliminary objection has been taken on behalf of the respondents that the order was one of affirmance and no leave should have been granted unless the High Court certified that the appeal involves some substantial question oflaw. It may be pointed out that so far as the dismissal of the appeal against the order refusing to set aside the ex parte order is concerned, the matter is closed and no application was filed by the appellant to reopen the matter by way of any application for leave to appeal to thisis no dispute about the valuation and though the order does not in terms mention that the case involves a substantial question of law, we are of opinion that the certificate was granted on that ground. There is no defect in the certificate and the preliminary objection iss contended on behalf of the respondents that the word remitted should be read in the sense of rejected, and that the amount so rejected should be taken to represent the amount which was due to fair remuneration for labour to the two respondents.This contention has no force. The respondents were to get profits in lieu of the labour and skill contributed by them and there can, therefore, be no question of any separate remuneration to be granted to them for labour and skill. The contention is also inconsistent with the suggestion that the claim was rejected on the ground of poverty. Either the claim was due or it was not; if it was, then the arbitrators had no power to reject it on the ground that the respondents were too poor to pay it. If it was not due, then the ground of poverty had no bearing upon it. It seems to us that the arbitrators negatived the appellants claim against the respondents on the extraneous ground that they had contributed labour and were men in poor circumstances as against the appellant who was alleged to be a rich man. The award thus arrived at was anything but a settlement of the dispute which had arisen between the parties and which had necessitate the reference to arbitration.We are in agreement with the High Court that the agreement for reference to arbitration should be liberally construed by the court so as to lean in favour of upholding the award given by arbitrators, but that is no ground for sustaining the award where the arbitrators have clearly misdirected themselves and have exceeded the scope of their authority. The words in the agreement "Jo kuchh tai tasfiya faissala karenge Ham kohoga" on a proper interpretation were obviously intended to mean that the arbitrators were to put an end to the dispute by deciding the question of liability once for all and the parties were to abide by their decision but that cannot lead to the inference that the arbitrators were to travel outside the powers conferred upon them by the reference and were to decide the dispute on considerations wholly extraneous to it. So long as the arbitrators Act within the scope of their authority there can be no doubt that their decision must be accepted as valid and binding. In the present case however we are of opinion that the arbitrators acted in excess of their authority and the award must therefore be set aside.