Moradhwaj vs Bhudar Das on 4 January, 1955

1. Outcome

The Full Bench answered the referred questions as follows:
* An appellate court has the jurisdiction to refer a case pending before it to arbitrators for decision.
* An execution court does not have the jurisdiction to refer a case (execution proceedings) pending before it to arbitrators for decision.
* An appellate court hearing an appeal from an order made in execution proceedings also cannot refer the dispute to arbitration.
* An award made out of court in respect of a pending suit or proceeding can only be given effect to as an adjustment or compromise under Order 23, Rule 3, or Order 21, Rule 2, Civil Procedure Code (CPC), if and only if all the parties interested give their consent to this being done after the award is made. An objection by any party prevents its enforcement as an adjustment.

2. Core Issue

The Full Bench was constituted to resolve conflicting High Court decisions on two primary questions of law arising under the Arbitration Act, 1940:
1. Whether an execution court or an appellate court can refer a case pending before it to arbitrators for decision under the Arbitration Act.
2. Whether an award made out of court, without the formal intervention of the court, can be given effect to as an adjustment or compromise of a pending case when one of the parties objects to it.

3. Key Facts

• The parties, Moradhwaj (appellants) and Bhudar Das/Bhumandal Das (respondents), were related and had a history of disputes stemming from a joint Hindu family partition, concerning easementary rights, property, and an assault.
• Several civil and criminal litigations were pending between them.
• On 11-12-1944, the parties entered into an agreement to refer "all these litigations as well as other disputes" to arbitrators.
• Four specific civil cases (one appeal, one execution appeal, one suit for damages, and one execution application) were then pending in the court of the Civil Judge of Etah. A criminal complaint, though not yet a revision application, was also included in the general reference.
• Applications were made to the court on 12-12-1944 to refer these cases to arbitration. The execution application (No. 698 of 1940) was rejected on the ground that an execution case could not be referred to arbitration.
• The other three cases (execution appeal, suit, and civil appeal) were referred to arbitration by court order dated 11-1-1945.
• An award was made on 14-3-1945. The arbitrators noted that the parties had informed them no criminal dispute was pending, so no award was made on that.
• The respondents applied under Section 14 of the Arbitration Act to have the award filed and a decree passed.
• The appellants objected, primarily arguing that the execution court and appellate court lacked jurisdiction to refer the matters to arbitration under the Arbitration Act, rendering the award invalid.
• The lower courts dismissed the objections and passed decrees in terms of the award in all four pending cases (including the Section 14 application), leading to these four appeals to the High Court.

4. Arguments (Appellants vs. Respondents)

• Appellants (Moradhwaj & Ajit Prasad):

  • The words "suit" and "Court" in the Arbitration Act, particularly Section 21 and the definition in Section 2(c), refer exclusively to proceedings in a court of original jurisdiction.
  • Therefore, neither an execution court nor an appellate court has the power to refer a case to arbitration under the Act.
  • Sections 107 and 141 of the Civil Procedure Code, or Section 8 of the General Clauses Act, do not extend the provisions of the Arbitration Act to execution proceedings or appeals.
  • An award made without proper jurisdiction by the referring court cannot be enforced as a compromise or adjustment if one party objects to its terms.

• Respondents (Bhumandal Das & Bhudar Das):

  • The word "suit" should be interpreted broadly to include execution proceedings and appeals, as appeals are a continuation of a suit.
  • Similarly, "Court" should include not only original courts but also execution and appellate courts.
  • Alternatively, Section 107 CPC, which grants appellate courts the same powers as original courts, when read with Section 8 of the General Clauses Act (which deals with repeal and re-enactment of statutory provisions), empowers an appellate court to refer disputes to arbitration.
  • Similarly, Section 141 CPC, read with Section 8 of the General Clauses Act, would enable an execution court to do the same.
  • Even if the reference was initially incompetent, the award could be given effect to as an adjustment or compromise of the dispute under Order 23, Rule 3 or Order 21, Rule 2 CPC.

5. Court’s Reasoning

The Court meticulously examined the historical development of arbitration law in India and the specific provisions of the Arbitration Act, 1940, and the Civil Procedure Code.

• Interpretation of "Suit" and "Court" under Arbitration Act, 1940 (Issue 1):

  • The Court analyzed the scheme of the 1940 Act (Chapters II, III, IV) and concluded that "Court" in Section 2(c) and "suit" in Section 20 (Chapter III) clearly refer to a court of original jurisdiction and an originating proceeding, respectively.
  • Applying the pari materia rule of statutory interpretation, the Court held that "suit" in Section 21 (Chapter IV) and in the definition of "Court" in Section 2(c) for the purpose of Section 21 must carry the same meaning. It noted that in other procedural statutes (CPC, Limitation Act, U.P. Tenancy Act), "suit" generally does not include appeals or execution proceedings unless specifically provided.
  • Therefore, on its own terms, Section 21 of the Arbitration Act does not empower appellate or execution courts to refer matters to arbitration.

• Appellate Court's Power via CPC and General Clauses Act (Issue 1):

  • The Court acknowledged that historically, under previous Civil Procedure Codes (1877, 1882, 1908 before 1940 Act), appellate courts were held to have the power to refer appeals to arbitration by virtue of Section 582 (old Codes) or Section 107 (1908 Code), which conferred upon them the same powers as courts of original jurisdiction.
  • It held that Section 107(2) CPC, read with Section 8 of the General Clauses Act, 1897, preserves this power even after the enactment of the Arbitration Act, 1940. Section 8 GCA states that where a Central Act repeals and re-enacts a provision (like Schedule II of the CPC), references in other enactments (like Section 107 CPC) to the repealed provision should be construed as references to the re-enacted provision (the Arbitration Act). Thus, the power derived from Section 107 CPC now refers to the provisions for arbitration in the 1940 Act.

• Execution Court's Power (Issue 1):

  • The Court reiterated the long-standing legal position, confirmed by the Privy Council (Thakur Prasad v. Fakirullah), that Section 141 CPC (corresponding to old Section 647) does not apply to execution proceedings.
  • Consequently, Section 8 of the General Clauses Act cannot extend the Arbitration Act provisions to execution proceedings through Section 141 CPC.
  • Furthermore, the Court found the Arbitration Act's provisions for passing decrees in terms of awards inconsistent with the nature of execution proceedings and the remedies available (e.g., challenges under Order 21, Rule 58 or Section 47 CPC are not decrees for execution and allow for separate suits), making execution an unsuitable subject for arbitration under the Act.

• Award as Adjustment (Issue 2):

  • The Court noted the conflict in pre-1940 decisions regarding whether an out-of-court award could be enforced as an adjustment under Order 23, Rule 3 or Order 21, Rule 2 CPC, even if objected to.
  • It highlighted the crucial addition of the proviso to Section 47 of the Arbitration Act, 1940: "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."
  • The Court held that the phrase "with the consent of all the parties interested" unequivocally refers to consent to the award itself, given after its making, not merely prior consent to the reference agreement.
  • To allow an award to be enforced as an adjustment against a party's objection would circumvent the statutory safeguards and equitable grounds for challenging awards provided within the Arbitration Act.

6. Statutory References

• Arbitration Act, 1940:

  • Section 2(c) (Definition of "Court")
  • Sections 3 to 19 (Chapter II - Arbitration without Court Intervention)
  • Section 14 (Filing of award in Court)
  • Section 20 (Chapter III - Arbitration with Court Intervention where no suit is pending)
  • Sections 21 to 25 (Chapter IV - Arbitration in pending suits)
  • Section 21 (Power to refer to arbitration in suit)
  • Section 37 (Limitations)
  • Section 41 (Procedure and powers of Court)
  • Section 47 (Provisions of Act to be exhaustive)

• Civil Procedure Code, 1908:

  • Section 107 (Powers of Appellate Court)
  • Section 141 (Miscellaneous proceedings)
  • Order 21, Rule 2 (Payment out of Court to decree-holder)
  • Order 21, Rule 58 (Investigation of claims and objections)
  • Order 21, Rule 95 (Delivery of property in occupancy of judgment-debtor)
  • Order 21, Rule 97 (Resistance or obstruction to possession of immovable property)
  • Order 23, Rule 3 (Compromise of suit)
  • Section 47 (Questions to be determined by the Court executing decree)
  • Section 89 (Arbitration - Note: This section was in the 1908 CPC before the 1940 Arbitration Act consolidated the law)

• Civil Procedure Code, 1882:

  • Section 506 to 526 (Arbitration provisions)
  • Section 582 (Powers of Appellate Court)
  • Section 647 (Miscellaneous proceedings)

• Civil Procedure Code, 1877:

  • Section 506 to 526 (Arbitration provisions)
  • Section 582 (Powers of Appellate Court)

• Civil Procedure Code, 1859:

  • Sections 312 to 327 (Arbitration provisions)
  • Section 358 (Powers of Appellate Court)

• Act 23 of 1861:

  • Section 37 (Powers of Appellate Court)

• Bengal Regulation (16 of 1793)

• Regulation dated 17-6-1787
• General Clauses Act, 1897:
  • Section 8 (Construction of references to repealed enactments)
• Indian Penal Code:
  • Sections 147, 452, 323 (Criminal offences cited in original complaint)
• U.P. Agriculturists' Relief Act (Act 27 of 1934):
  • Section 12 (Redemption of mortgages)
• U. P. Tenancy Act, 1939: (General reference)
• Limitation Act: Section 2(10) (Definition of "suit")

7. Precedents Cited

• Followed/Agreed With:

  • Munni Lal v. Kishun Prasad, AIR 1948 All 443 (B) - Agreed with its view that an appellate court can refer disputes to arbitration (via S.107 CPC + S.8 GCA), but disagreed with its view on execution proceedings.
  • Lakshmi Narain v. Ram Babu, AIR 1953 All 9 (X) - Followed that an appellate court has jurisdiction to refer.
  • Indramoni Mohpatra v. Nilamoni Moharana, AIR 1950 Orissa 169 (Z2) - Followed on the interpretation of the proviso to S.47 Arbitration Act (consent to award after making).
  • Raghunandan Rai v. Sukhlal Rai, AIR 1952 Pat 253 (Z3) - Followed on the interpretation of the proviso to S.47 Arbitration Act.
  • Nazir Mohammad v. Kasturchand Gomaji Co., AIR 1951 Mys 57 (Z4) - Followed on the interpretation of the proviso to S.47 Arbitration Act.
  • Jugaldas Damodar Modi & Co. v. Pursottam Umedbhai and Co., AIR 1953 Cal 690 (Z5) - Followed on the interpretation of the proviso to S.47 Arbitration Act.
  • Abdul Rahman Sahib v. Muhammad Siddiq, AIR 1953 Mad 781 (FB) (Z6) - Followed on the interpretation of the proviso to S.47 Arbitration Act.
  • Perth Local Board v. Maley, (1904) 1 Australia CLR 702 (R) - Cited for the principle of statutory interpretation (pari materia).
  • Rex v. Loxdale, (1758) 1 Burr 445 (Q) - Cited for the principle of statutory interpretation (pari materia).
  • R. V. Palmer, (1785) 1 Leach 352 (P) - Cited for the principle of statutory interpretation (pari materia).

• Distinguished/Partially Disagreed With:

  • Shukrullah v. Mt. Rahmat Bibi, AIR 1947 All 304 (A) - Agreed with its interpretation of S.2(c) Arbitration Act (Court means original jurisdiction) but noted it did not consider S.8 GCA.
  • Chiranji Lal v. Jamna Das, 7 NWP, HCR 243 (FB) (D) - Historical reference, upheld appellate court power under 1861 Act.
  • In re Sangaralingam Pillai, 3 Mad 78 (E) - Historical reference, held appellate court could refer under 1882 Act.
  • Sarju Prasad v. Sita Ram, 10 All 71 (F) - Historical reference, overruled by Privy Council on S.141 CPC applicability to execution.
  • Fakirullah v. Thakur Prasad, 12 All 179 (G) - Historical reference, overruled by Privy Council.
  • Zumaklal Motiram v. Fulchand Tarachand, AIR 1941 Bom 20 (N) - Agreed that Schedule II CPC didn't apply to execution, but noted it held an award could be an adjustment (disagreed on this point in post-1940 context due to S.47 proviso).
  • Sarju Lal Beharl Lal v. Sukhdeo Prasad, AIR 1936 All 378 (J) - Cited for pre-1940 view that execution cannot be referred.
  • T. Wang v. Sona Wangdi, AIR 1925 Cal 812 (K) - Cited for pre-1940 view that execution cannot be referred.
  • Bachan Lal v. Amar Singh, AIR 1935 All 125 (L) - Cited for pre-1940 view that execution cannot be referred.
  • Ramdayal Munnalal v. Sheodayal, AIR 1939 Nag 186 (FB) (M) - Cited for pre-1940 view that execution cannot be referred.
  • Jafar v. Abdul Ghafoor, AIR 1943 Oudh 304 (U) - Disagreed with its finding that execution proceedings could be referred, noting it lacked authority and was based on broad interpretation of 'suit'.
  • Mohd. Habibullah v. Tikam Chand, AIR 1925 All 276 (2) (V) - Distinguished, as it dealt with S.24 CPC 'other proceedings' for transfer, not 'suit' for arbitration.
  • Balram Singh v. Dudh Nath, AIR 1949 All 100 (W) - Distinguished as not relevant to the core issue of execution/arbitration, as it concerned a special Act.
  • Dular Koeri v. Payag Koeri, AIR 1942 All 145 (Z8) - Distinguished, as its observation on S.47 Arbitration Act was obiter and did not specifically consider the proviso's wording.

• Overruled (or effectively overruled for previous interpretations):

  • Juggeshur Dey v. Kritartha Moyee Dossee, 21 Suth WR 210 (FB) (C) - Historically overruled by N.W.P. High Court and later by CPC provisions.
  • Bunko Behary v. Nil Madhav, 18 Cal 635 (H) - Historical reference, taking a contrary view to Allahabad decisions on S.141 CPC application to execution.
  • Thakur Prasad v. Fakirullah, 17 All 106 (PC) (I) - Privy Council ruling, effectively settling that S.141 (then S.647) CPC procedure for suits did not apply to execution.
  • Thakur Prasad v. Baleshwar Ahir, AIR 1954 Pat 106 (T) - Disagreed with its interpretation that 'court' in S.2 Arbitration Act includes appellate court.
  • Arumuga Mudaliar v. Balasubramania Mudaliar, AIR 1945 Mad 294 (Z7) - Overruled by Abdul Rahman Sahib v. Muhammad Siddiq (Z6), which this Full Bench followed.

• Cited for general principles/historical context:

  • Bindraban Katiar v. Ganga Ram, AIR 1940 All 445 (O) - Cited for "suit" not including appeal in U.P. Tenancy Act.
  • Subbaraju v. Venkataramaraju, AIR 1928 Mad 1025 (FB) (Y) - Cited as an example of pre-1940 view allowing awards as adjustment.
  • Gajendra Singh v. Durga Kumari, AIR 1925 All 503 (FB) (Z) - Cited as an example of pre-1940 view allowing awards as adjustment (per Walsh and Kanhaiya Lal JJ).
  • Maung Hlay v. U Ge, AIR 1939 Rang 300 (FB) (Z1) - Cited as an example of pre-1940 view not allowing awards as adjustment if objected to.