PARKASH CHAND KHURANA ETC. v.

HARNAM SINGH & ORS.

March 28, 1973 [S. N. DwlVEDI AND Y. V. CHANDRACHUD,- JJ.] Practice---iA ward of arbitrator-Decree in 1erms of award-Provision for return of property in default of certain payments-Executability.

The respondent erected a factory on a plot of land allotted to them by the Faridabad Development Board. They agreed to sell their rights in the plot and the factory to the appellants. Disputes :iaving arisen between the parties on certain matters relating to the agreement, they were referred to arbitration.

The arbitrator gave an award and a decree was passed in terms of the award. . Under the award, the appellants were liable to discharge the liability of the respondents to the Faridabad Development Board In the sum of about Rs. 23,000/-. The appellruits were to pay thi• amount within H years, or, alternatively, to obtain from the Board within that period a complete di.charge for the respondents. In default of such payment, the respondents were entitled to take back possession of the plot and factory. The appellants paid only a sum of. Rs. 8,000/ - to the Board and this sum was shown in the accounts of the Board as lf _paid by the respondents.

As the appellants committed default the resjloodeoto took out execution. The appellants opposed the application but the High Court, in Letters Patent appeal, directed execution to proceed.

Dismissing the appeal to this Cour~ HELD: ( 1) There is no support for the contention of the appellants that the default on their part occurred by reason of the non-cooperation of the respondents. The evidence shows that the appellants were not in a position to make the payment.

[807F-GJ

(2) By the respondents transferring their entire interest in the property to the appellant. there existed a foundation for the creation of privity between the appellants and the Board; but 1he Board never agreed to substitute the appellants as its debtors in place of the respondents. Even after accepting the sum of Rs. 8,000/- from the appellants, ihe Board was entitled to recover the balance from the respondents.

[807H;

808B-DJ Kandarpa Nag v. Banwari Lal Nag and Ors., A.LR. 1921 Cal.. 356(2), Mitha and Ors. v. Remal Dass and Ors., A.I.R. 1937 Lah. 828 and Sheikh

Mohidin Tharagan v. Vadiva/agianambia Pillai, 22 J.C. 37, referred to.

(3) The recital in the award that on the failure of the appellants to make the payment the respondents were entitled to take back possession of the plot and the factory has to be considered in the entire scheme of G the award, and so considered, there is no doubt that it was not merely the possession of the property but the title thereto also would pass to the respondents.

[809 C-DJ

(4) The appellants' liability to pay the dues of the Board would operate only if the title to the property is vested in them. [809E-F]

(5) Tho -tenor of the award shows that the arbitrator did not intend merely to declare the rights of the parties. It is a clear intendment of H the award that if the appellants defaulted in discharging their obligation under the award the respondents would be entitled to apply for execution and obtain possession of the property. [809 F-Hl

( 6) The clause in the award providing 'for the right of th~ espondent" to obtain possession of the property on. the appellants committing deauit. is not in the nature of a penalty against which the appellants are entitled to be relieved.

Moreover, the term is contained in a decree passed. by the Court in terms of the award and no relief can be granted as agamst the terms of a decree~ The award-decree could not be treated as a consent decree, because, the award was valid on its own, independently of any decision of the parties not to object to it.

[810 A-DJ

Kandarpa Nag v. BanwarG Lal Nag and Ors .• AI.R. 1921 Cal., 356(2), Mitha and Ors. v. Renu:I Dass and Ors., A.I.R. 1937 Lab. 828 Sheikh Mohidin Tharagan v. Vadivalagianambia Pillai 22 l.C. 37 and Chanbasappa Gurushantappa Hire111ath v. Basalingayya Gokurnaya, 51

I.L.R.

Born. 908, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1866 of 1967.

Appeal by certificate from tl).e judgment and decree dated September 15, 1967 of the Punjab & Haryana High Court at Chandigarh in Letters Patent Appeal No. 139 of 1965.

D. V. Patel, G. S. Vohra, R. P. Agarwal and M. V. Goswami;. for the appellants.

G. L. Sanghi, C. S. Rao, J. B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the respondents.

The Judgment cf the Court was delivered by

CHANDRACHUD, J.-Plot No. 29-B Industrial Area, Faridabad, was allotted in the year 1952 to the respondents by the Faridabad Development oard. Respondents erected buildings on the plot, mstalled machmery therein and started a factory in the 11ame and style of "Bharat Rubber Mills". By an agreement of May, 1955 respondents sold their rights in the plot and the factory to the appellants. Disputes arose between the parties on certain matters relating to the agreement, which the parties referred to an arbitrator.

The arrtrator gave his award on August 4, 1955 and lhe award became a rule of the court on August 23, 1956.

One of the principal terms of the award, broadly, was that the appellants were to pay a certain sum of money to the Board in discharge of the liability of the respondents and on their failure to make the payment, they were to give back the possession of the plot and the factory to !he respondents. The appellants not havi:llg paid the amom!t, respondents filed a series of execution

applications the last of which is dated January 15, 1964. Appellants opposed that application on various grounds which were re.iected by the executing court and the execution was directed. to proceed.

Appellants filed an appeal against the judgment of the. executing court, which was allowed by .a learned si:ngle Judge of the High Court of Punjab and Haryana. Respondents challeng-

.ed that judgment in Letters Patent Appeal No. 139 of 1965.

That appeal was allowed by a Division Bench on September 15 1 ~67 and the judgment of the executing court was restored. Th~ High Coult has granted to the appellants leave to appeal to this Court. frm its judgment under Article 133(1) (a) and (c) of the Constitution.

Under clause 2 of the award, the appellants were liable to dis- -charge the liability of the respondents to the Faridabad Development Board in the sum of Rs. 23,686-6-0. Under clause. 7, the a plants were to pay this amount within 1 t years or alterntively, to obain from the Board within that period a complete discharge for the respondents. It is common ground that within

the stated period the appellants had paid a sum of Rs. 8,000/- only to the Board. In addition, they had forwarded to the Board

for its acceptance verified claims in the sum of Rs. 10,000/- which they held under the Displaced Persons (Compensation and Rehabilitation) Act, 1954.

The Board was evidently disinclined to accept the verified claims in discharge of the liability of the respondents. Assuming, however, in favour of the appellants that

the verified claims constituted a valid payment, they had still not paid ro the Board the full amount which they were liable to pay under clause 2 of the award, within the period mentioned in clause 7.

As the appellants committed default in the payment of the aforesaid amount, the consequence prescribed by clause 7 of the award would follow, namely, that the resnondents would be entitled to take back possession of the property from the appellants.

Learned counsel appearing for the appellants, however, argues that the respondents refused to co-operate with the appellants and in the absence of such co-operation the appellants, though ready 'llld willing to pay the amount, were unable to do so. They cannot. therefore, be visited with the penal consequences provided for by -clause 7 of the award.

Our attention has been drawn to the bulk of the correspondence that transpired between the anpellants and the Board on the <>ne hand and the appellants and the resoondents on the other but we see therein no su&port for the contention that the default on the part of the appellants occurred by reason of the non-i:oo]1Cration of the respondents. Aopellants created imoediments in their

own way by asking the Board to acceot verified claims ln dis- -char11; e of the liability of the respondents. The Board was under no le!!:al obligation to accent the verified claims, not at any rate Without nroner scrutinv. and such scrutinv could notoriously take longer than -the oeriod of It years orovided for bv clause 7 of the award. It was. for the apoellants ro find ways and means to s•tisfy 1he dues of the Board in a fomt acceptable to it but they failed to

A do so.

The co-operation of the respondents had no place in this picture.

Clause 7 of the award, in so far as is relevant on this aspect, reads thus :

"In case the second party does not make payment to the Faridabad Development Board as mentioned in clause No. 2, mentioned above, for a period of H years or does not take the liability of the Development Board on itself as a result whereof the liabilities of the first party do not come to an end, as mentioned in clause No. 2, .............. the first party shall be entitled to take back the possession."

It is clear that the appellants had a two-fold option under this clause. They had either to make the payment to the Board within the stated period or they had to enter into an arrangement with the Board in order, effectively, to terminate the liability of the respondents to the Board. Tb.e first option was not availed of by the appellants. But the appellants drew our attention to the correspondence between the concerned parties in an effort to estal>lish that by accepting part payment of the amount from, the appellants, the Board had agreed to substitute the appellants as its debtors in place of the respondents, thereby terminating the liability of the respondents.

The agreement tween the appellants and respondents, where~ by the latter sold their interest in the property to the appellants was executed in May, 1955. The correspondence began with a letter Ex. J.D. 12, dated May 20, 1955 and continued at least till the early part of 1957. By their letter Ex. J.P. 12, tl)e appellants informed the Administrator, Faridabad Development Board, that they had decided to make payment of all the amounts due to the Board. By a letter Ex. J.P. 13 dated October 5, 1955, the appellants informed the Administrator that they had purchased the .factory from the respondents and they inquired of the Administrator

whether, the verified claims held by them in respect of the property which they owned in Pakistan could be accepted in satisfaction of the liability of the respondents.

Further corresponden~ ued between the parties and on January 16, 1956 the AdmlWstratoc wrote to "M/s. Bharat Rubber Mills, Faridabad" asking them to pay a sum of Rs. 27 ,325-9-0 which had accrued due on account of premium, ground rent and house rent. Appellants place strong reliance on this letter in order to show !hat the Board looked to them for meeting the liability of the respondents, which according to the appellants, must effeotively discharge the respon4ents from their liability to the Board.- We are unllPle to read tile letter as having any such effect.

The Administrb.tor used to address all'

correspondence to "Ml s. Bharat Rubber Mills Faridabad" because it is they who were liable to pay the dues f the Board.' The letters, though not specifically intended for the appellants, naturally fell into their hands ause under an agreement with the respondents they had purchased the "Bharat Rubber Mills" and were in possession thereof. The particular letter, therefore would be inadequate to establish that the Board had recognised ihe transfer m favour of the respondents or thll't it had agreed to substitute the appellants as its debtors, in place of the respondents.

Reliance is then placed on 5 letters : Exhibits J.D. 20, 21. 22, 25 and 23 dated April 10, 1956, October 25, 1956, November 15, 1956, January 7, 1957 and January 30, 1957 respectively, for showing that bly accepting the payment o.f Rs. 8,000/- from the appellants the Board had recognised the appellants as its

.Jeors, discharging thereby the respondents from their liability.

By Bx. J.D.20, the appellants informed the Board that they had purchased the property from the respondents and that they were teady and willing to pay the entire dues of the Board according to the terms of the award. The Board did not send a reply to this letter and that abstention, though not commendable in a public body, militates against the inference that the Board had recognised 'the appellants as its debtors in place of the respondents.

Along with the letter Bx. J.D.21, appellants enclosed 7 cheques of Rs. 1,000 each and. agreed to pay the balance in monthly instalments of Rs. 1,000. By their letter Bx, J.D.22 the appellants requested the Board to deposit the aforesaid 7 cheques in the bank, not all at once but one per week. It appears that in course

o.f time the Board realised the amount sent by the apoellants through the 7 cheques. By their Jetter Ex. J.D.25, the appellants requested the Board to send an official receipt in respect of the sum of Rs. 7,000. Finally, by the letter Ex. J.D. 23 the appellants sent to the Board yet another cheque in the sum of Rs. 1,000 along with true copies of verified claims in the sum of Rs. 10,000. The cheque for Rs. 1,000 was cashed by the Board in course of time but the verified claims, though not returned, were at no stage :accepted.

It seems to us difficult from the tenor of this correspondence to 'hold that the Board had accepted the appellants as their debtors

in substitution of the respondents, thereby releasing the Jetter from their primary liability. The Board was interested in recovering its dues and the circumstance that payments made by the appellants were accepted by it cannot have the effect o.f releasing the res- H vondents from the undischarged liability. Normally, a public authority like the Board would not agree to substitute a new debtor in place of the old without at least a formal inquiry into the

'°• solvency of the former. There seems no evidence of such an in quiry; The argument al the appellants that by paying a part of the amount due to the Board they had obtained a v!llid discharge for the respondents in regard to the entire claim of the Board over

looks that even after accepting the sum of Rs. 8,000 from the ap pellants, the Board would be entitled to recover the balance from B the respondents, who were primarily liable to pay the am~'!°t. It

would be wrong to hold, in the absence of a formal recogmtton of the appellants by the Board as its debtors, that the liability of the respondents had come to an end.

In fact, by their letter Ex. J.D. 3 d11ted February 6, 1957 the' Board wrote to the appellants in answer to their letter of January

30, 1957 that the payments made by them were "credited to the account of M/ s. Harnam Singh and Tarlok Singh, Proprietors, Bharat Rubr Mills, Faridabad" and that the Board could not re' cognise the appellants as transferees of the plot unless and until the' entire sum due from the respondents was paid. Harnam Singh .

and Tarlok Singh are respondents 'lo this appeal. On March 20, 1960 the Assistant Settlement Commissioner in the Ministry of Rehabilitation, Government of India, wrote a lel'ter Ex. J.D. 5 tO'

the appellants that the transfer in their favour was never recognised by the Board. It would appear that in the meanwhile., the appellants had sent 3 cheques to the Board but those cheques were returned by the Assistant Settlement Commissioner along with letter Ex.

E J.D. 5. These two letters were undoubtedly written by or on behalf of the Board after February 4, 1957 when the period of U. years .Prescribed by clause 7 of the award expired, but it woql<, i be .

wrong to ignore these letters on the supposition that the Board had : entered into a conspiracy with the respondents in order to defeat' the title of the appellants. Such on inference was pressed upon \ls F biut there is no basis for it. The attitude Of the Board rather shows that it was interested in recovering its dues and had waited long

enough to enable the appellants to make the payment. . The truth of the matter, as held by the Division Bench of the High Court, seems to be that the appellants were not in a position to make the payment.

G It is interestinl! to note that the appellants had themselves. stated in paragraph 8 of their Objections to the execution application filed by the respondents, that they wanted to make the payment of the entire amount to the Board but that the Board had refused to re cognise them and that the payment of Rs. 8,000 made by them H was shown in the accounts of the Board as if it were made by res

pendents. It is clear from this statement that the appellants were conscious that the Board had refused to recognise them as its deb tors, in place of the respondents.

In this view, it is unnecessary to consider whether the letter , A Ex. D.H. 7 dated February 17, 1956 alleged to be written the respondents to the Board , is genuine or not.

The decisions in Nochulliyil Euzhuvan Theethi's son Thethalan

v. The Era/pad Rajah Styled Flaya Rajah Avargal of Patinhara Kovilagam & Ors., (1) Saradindu Mukherjee v. Sm. Kunja Kamini Roy and Ors.,(') and Krishna Bhatta v. Narayana Achary and Anr., (8) on which the anpellants' counsel relies can be of no assistance.

It was held in Nochul/iyil's case that the mortgagee with possession from the lessee is not liable to the lessor for rent as there is neither privily of estate nor privily of. contract between them. It is undoubtedly true that the respondents had transferred their entire interest in the property to the appellants and therefore there existed a foundation for the creation of a privily between the appellants and the Board. However, as indicated abov~, the Board never agreed to substitute the appellants as its debtors in place of the respondents.

In Saradindu Mukherjee"s case, it was held that an express or implied recogni1ion by the lessor of a transferee from the original tenant would be effective to discharge the Iiablility of the tenant. In the instant case the evidence of such recognition is lacking.

Krishan Bhatta"s case is distinguishable for the same reason.

It is then contended that on the appellants defaulting, the respondents would at the highest be entitled to recover possession of the property from them but their title will not pass with such parting of possession. Clause 7 of the award on which the appellants' counsel relies in suppert of this argument provides that if the appellants committed default in payment of the amount, the respond!)nts "shall be entitled to take back the possession". This tenn, tom from the rest of the award, may lend plausibility to the appellants' contention but for a true construction of that tenn. one must have regard to the entire scheme of the award. Clause 7 itself contains a specific recrtal that until such time as the Board's dues remain unsatisfied or the liability of the respondents rmains undischarged, the appellants "shall not be competent to transfer the rights of Bharat Rubber Mills in the factory, site, buildin!!.

and machinery etc., in any manner by means of mortgage, sale or to remove the same" and that the possession of the appellants' during the interregnum shall be deemed to be "in trust".

This recital leaves no doubt that if the appellants committed default in discharging their obligations under the award, not merely pessession of the property but the title thereto would pass to the respondents; or else, it was meaningles's to put restraints on the POer of the appellants to deal with the property as owners and to provide

(l) 40 I.LR. Madra• 1111.

(2) A.T.R. 1942 Cal. 514.

(3) A.T.R. 1949 Mad. 618

A that so long as they did not discharge their obligations they would be in possession as trustees. Such a trusteeship can, in the cir -

cumstance~ enure for the benefit of the respondents alone.

1.f the appellants, on defaulting, were liable to handover mere possession to the respondents, it would be difficult to work out the consequent rights and obligations of the parties. There is no provision in the award as to the further period within which the appellants must discharge their obligations, nor ifl4eed is thero any provision as to whether the respondents, after getting back possession from the appellants, would be free to deal with the property in the ordinary course of business. If the title to the property was to remain vested in the appellants and the respondents were to obtain the mere husk of possession, the appll_llan\s might contend for recovering from the respondents the entire fruit of their labour, 'after discharging the obligations under the award at their leisure and convenience.

We are therefore clear that on failure of the appellants 10 discharge their obligations under the award within the stated period, the possession of the property and along with it the title thereto must pass to the respondents.

There is no sense of realism in the apprehension of the appellants that after recovering possession from them, _the respondents could still insist that they should pay the sum ()f Rs. 23,000/- and odd to the Board. Clause 3 of the award which, along with clauses 2 and 7, makeli the appellants liabk to pay the dues of E the Board would operate only if the title to the property is vested in the appellants. The liability to pay the dues of the Board is 311 incident of ownership and would therefore pass with the title to the property.

The next contention of the apptllants is that the award is. merly declaratory of the rights of the parties and is therefore inexecutable.

This contention is based on the wording of clause 7 of the award which provides that on the happening of certain events the respondents "shall be entitled to take back the possession", we are unabile to appreciate how this clause makes the award merely declaratory. It is never a pre-condition of the executability of a decree that it must provide expressly that the party entitled to a relief under it must file an execution applicatio)l for obtaining that relief. The tenor of the award Shows that the arbitrator did not intend merely to declare the rights to the parties. It is a clear intendment of e award that if the appellants defaulted in discharging their obligations under the award, the respondents would be entitled to apply for and obtain nossession of the property.

The last contention of the appellants is that <he particular term of clause 7 of the award providing for the right of the respondents to obtain possession of the property on the appellants committinl! 4-L797Sup.Cl/73

default is in the nature of a penalty, against whicJi appellants are entitled to be relieved. One answer to this contention is that it is impossible to treat the particular term as in the nature of a penalty.

Secondly, the term is contained in a decree passed by the court in terms of the award and no relief can be granted as against the terms of a decree stands on the same footing as a consent decree because bloth tlie parties expressly agreed that the award should be made a rule of the court. The failure of the respondents to object to 1he award may stem from several considerations, including the one that an award can be set aside only on the grounds specified in section 30 of the .Arbitration Act, 1940, and none of those grounds may have been available to !hem. We, therefore. see no warrant for the view that the award decree should be treated as a consent decree. The award of the arbitrator did not get its efficacy by reason of the fact lhat the parties agreed to it. The award was valid on its own, independently of the decision of the parties not to object to it. On the other hand, the validity of a compromise decree flows from the consent of th.e parties.

The decisions in Kandarpa Nag v.

Banwari Lal Nag and Ors.,(') Mitha and Ors. v. Rema/ Dass & Ors",(') and Ana Sheikh Mohidi11

Tharagan v. Vadivalagianambia Pillai(') relate to penal clauses in compromise decrees and are therefore distinguishable.

The Full Bench decision in Chanbasappa Gurushantappa Hiremath v.

Basalirigayya Gokurnaya Hire math & Ors.,(') can also have no application because that case is an authority for the limited proposition, prior to the enactment of the Arbitration Act, 1940, that where in a suit parties have referred their dispute to an arbitration without an order of the court and an award is made, a decree in terms of the award could be passed by the court under Order XXIlI, Rule 3, of the Code of Civil Procedure. In the instant case, parties agreed to refer their disputes to arbitration when no suit was pending and the award subsequently became a rule of the court.

For these reasons we cOllfirm the judgment of 1he High Court and dismiss the appeal with costs.

V.P.S.

(I) A.l.R. 1921 Cal 356 (2).

(2) A.I.R. 1937 Lah, 828i

(3) 22 I. c. 37.

(4) 51 I. L. R. Born. 908

Appeal dismissed.