IN THE HIGH COURT OF KERALA AT ERNAKULAM
Arb.A.No. 12 of 2003()
1. KALLALATHIL SEKHARAN
... Petitioner
Vs
1. KALLALATHIL SREEDHARABN
... Respondent
For Petitioner :SRI.K.P.DANDAPANI (SR.)
For Respondent :SRI.SAJEEV KUMAR K.GOPAL
The Hon'ble MR. Justice A.K.BASHEER
The Hon'ble MR. Justice P.Q.BARKATH ALI
Dated :04/03/2010
O R D E R
A.K.BASHEER & P.Q.BARKATH ALI, JJ.
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Arb. Appeal Nos.12, 13, 14, 16, 18 and 19 OF 2003
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Dated this the 4th day of March 2010
JUDGMENT
Basheer, J.
These six appeals which have been filed under Section 39 of the
Arbitration Act, 1940 (for short ‘the Act’), are being disposed of by this
common judgment since the parties and the issue involved in them are the
same.
2. The question that arises for consideration in these cases can be
posed thus:
Is not an Arbitrator appointed under the Act entitled and empowered
to pass an award recording the terms of settlement reported by the parties
and their respective counsel before him, orally?
To put it differently;
Is an Arbitrator bound to insist on the parties to file a formal petition
for compromise as provided under Rule 3 of Order XXIII of the Code of
Civil Procedure in order to make his award valid and legally binding on the
parties?
Or
Are the powers of an Arbitrator circumscribed by the provisions
contained in Order XXIII of the Code of Civil Procedure?
3. Before we deal with the above issue, relevant facts may be
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briefly noticed.
4. These appeals arise from a common order passed by the
Subordinate Judge’s Court, Thalassery in a batch of Interlocutory
Applications in three original suits, which were instituted for dissolution of
partnership, rendition of accounts and other allied reliefs. The applications
were filed under Sections 15 and 33 of the Act by some of the defendants
in the suits to modify the award passed by the Arbitrator after conducting
an enquiry regarding its validity. One of the defendants, who was
apparently happy with the award, prayed in his applications that a decree
may be passed in terms of the award. The court below refused to interfere
with the award and held that it was not liable to be modified or set aside.
On the contrary, the Court ordered that the award be made rule of the
Court. Hence, these appeals.
5. The suits were instituted by one of the four brothers, who had
built up a small business empire in Kannur District and in parts of
Karnataka State. It appears that “inevitable discord” developed after some
time and one of the brothers, namely Sreedharan, instituted the three suits
referred to above before the Subordinate Judge’s Court, Thalassery in
OS.Nos.516/1994, 177/1995 and 178/1995. The defendants were the other
two brothers, namely Sekharan and Narayanan, and the widow and
children of deceased brother Lakshmanan.
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6. The primary prayer in the three suits which related to three
partnership concerns, namely M/s.Cannanore Central Oil Mills,
M/s.K.Sreedharan and brothers and M/s.Ramananda Textiles, was for
dissolution of partnership and rendition of accounts.
7. To cut a long story short, when one of the orders passed in the
suits came up for consideration before the Apex Court, the Court appointed
Mr.Justice K.P.Radhakrishna Menon, a retired Judge of this Court, as the
sole Arbitrator. The learned Arbitrator passed an award on 28th November,
2001, effecting partition of the three items of immovable property referred
to hereunder:-
“(i) Property where the Cannanore Central Oil Mills is
situated and the Cannanore Central Oil Mills;
(ii) Property where the Ramananda Textiles is situated and
the Ramananda Textiles(the property lies both in the Kannur
Municipality and Puzhathi Panchayat); and
(iii) Talap property.”
It may at once be noticed that there is no dispute that these were the
only three items which were agreed to be partitioned among the parties.
8. For the sake of convenience, the operative portion of the award
is extracted below:-
” It is agreed that the first item shown above
is allotted to the share of Party No.4(Sreedharan);
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the property shown above as Item No.2 is allotted
to Party No.2(Narayanan); and Item No.3 shown
above is allotted jointly to the share of Parties 1 & 3
who are having equal shares. It is also agreed that
for equalisation of shares Party No.4 shall pay
Rs.10 lakhs to Party No.3, who represents the heirs
of deceased Lakshmanan. Similarly, Party No.2
shall pay to Party No.1 Rs.10 lakhs. The
equalisation amounts shall be paid by the respective
parties at the time of passing the final decree for
partition in terms of this Award.
The liabilities of the firms, if any, will be
borne by the parties who have taken over them.
The Schedule and the Plan which the parties
have agreed to produce before the Court, will form
part of this Award. ”
9. Mr.Sekharan, who is the common defendant No.1 in the three
suits, and party No.1 referred to in the award, took exception to the
division and allotment of the properties made by the Arbitrator. According
to him, the division and allotment were not in terms of the consensus
arrived at by the parties before the Arbitrator and were totally inequitable,
arbitrary and heavily loaded in favour of defendant No.2 (Narayanan), who
was shown as party No.2 in the award.
10. Therefore, Mr.Sekharan filed three applications (one each in
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the three suits) with a common prayer to modify the award as provided
under Sections 15 and 33 of the Act. Similar applications were filed by
defendant Nos.3 to 6(widow and children of deceased Lakshmanan) with
identical prayers as made by Mr.Sekharan. These defendants made a
further prayer to conduct further enquiry regarding the validity of the
award and to set aside or modify the same. Mr.Sreedharan, the common
plaintiff in the three suits, apparently seemed satisfied with the allotment
made in his favour and, therefore, did not file any application as had been
done by Mr.Sekharan or the legal heirs of Lakshmanan.
11. Defendant No.2, Mr.Narayanan, came up with a prayer before
the Subordinate Judge to pass a decree in terms of the award of the
Arbitrator. Thus, all the nine applications in the three suits came up for
consideration before the court below.
12. The learned Subordinate Judge, after considering the rival
contentions of the parties, held that no ground had been made out either to
modify or set aside the award. It was further held that no further enquiry
need be held in the arbitration proceedings. Consequently, the learned
Judge allowed the prayer made by Mr.Narayanan to pass a decree and
judgment in terms of the award.
13. In this context, it may be noticed that an application for passing
a final decree is pending consideration before the court below. The
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Advocate Commissioner appointed by the court has already submitted his
report, share list, valuation account, plan, etc. But, no final decree has
been passed in view of the order of stay passed by this Court in these
appeals.
14. We have heard learned counsel for the parties at length and
perused the entire materials available on record, including the proceeding
papers of the learned Arbitrator which form part of the record.
15. As indicated earlier, the main grievance of the appellants, who
are defendant Nos.1 and 3 to 6 in the three suits, is that the Arbitrator had
proceeded to pass the award as though the parties had agreed among
themselves to divide and allot the properties on the terms as referred to or
indicated in the award. According to the appellants, the parties had in fact
agreed upon certain other terms in the matter of division and allotment;
but those terms have not been incorporated in the award at all.
16. For instance, the appellants point out that it was agreed among
the parties that item No.2 be divided into two shares and one such share
along with the factory building of Ramananda Textiles and the appurtenant
land having an extent of 47 cents with the running business, be allotted to
defendant No.2. The remaining 40 cents of land which falls within the
limits of Puzhathi Panchayat was agreed to be allotted to the share of
defendant Nos.1 and 3 to 6 jointly. The appellants have a further case that
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the parties had further agreed that item No.3 be alloted jointly to the share
of defendant Nos.1 and 3 to 6.
17. In this context, it may be pertinent to notice that the Arbitrator
allotted item No.2 in its entirety to the share of defendant No.2. In other
words, defendant Nos.1 and 3 to 6 have been denied any share in item
No.2 though the specific case of the appellants is that it was agreed by all
concerned that 40 cents of land in item No.2, with the old dilapidated
building therein, would be allotted to them. It is also pointed out by the
appellants that contrary to the agreement among the parties, item No.3
was divided into two, one share being allotted to defendant No.1 and the
remaining portion to defendant Nos.3 to 6, though the agreement was that
the said item (item No.3) would be allotted to the share of defendant Nos.1
and 3 to 6 jointly without division.
18. Learned counsel submits that the appellants do not intend to
make an issue out of the allotment of item No.3 at this stage. But, it is
vehemently contended by the learned counsel that the allotment of entire
item No.2 to the share of defendant No.2 is wholly arbitrary, inequitable
and illegal. While trying to highlight the inequity in the allotment of the
above item, learned counsel for defendant No.1 has raised his primary
contention based on Rule 3 of Order XXIII of the Code of Civil Procedure.
He has also advanced arguments seeking support from Sections 15, 16, 30,
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33 and 41 of Act, 1940. We will deal with the above contentions a little
later.
19. The short question that arises for consideration is whether the
Arbitrator had proceeded to pass the impugned award contrary to the
terms reported before him by the parties and their counsel. The other
question for consideration is whether the Arbitrator had acted with bias, or
shown any favouritism to one sharer or the other.
20. Before we deal with those aspects, it will be profitable to take a
glance at the award itself.
21. The award starts with the statement that the parties to the
proceedings had agreed that the Firms, of which dissolution and
accounting were sought for, can be ordered to be dissolved. They further
agreed to effect partition of the immovable properties into four equal
shares, without insisting for settling the accounts. The Arbitrator further
stated that there was unanimity with regard to the three items of
properties, which were agreed to be partitioned. The parties undertook to
produce the plan before the court, in case they failed to produce the same
before the Arbitrator on or before 11th December, 2001.
22. It was thereafter that the learned Arbitrator incorporated the
description of the three items of property in the award, which, according to
him, was intended only to make it abundantly clear that there was no
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ambiguity with regard to the identity of the properties. Thereafter, the
learned Arbitrator indicated as to how the three items of property were to
be divided among the four sharers (the operative portion has already been
extracted in the earlier part of the judgment).
23. It may be noticed that the dispute or bone of contention is only
in respect of item No.2. The appellants have not raised any demur or
protest as regards the allotment made in favour of the plaintiff. Similarly,
they have no objection with regard to the allotment of item No.3 to their
joint share. Further, the appellants seem to be happy about the payment
of Rs.10 lakhs to be made to each of them (party Nos.1 and 3). According
to the appellants, the only mistake committed by the Arbitrator is that he
ignored the terms of settlement arrived at among the parties in respect of
item No.2.
24. In this context, appellants place strong reliance on the
valuation account prepared by the Advocate Commissioner in the final
decree proceedings. According to the appellants, item No.2 is a very
valuable property worth approximately Rs.1,60,00,000/-(Rupees one crore
sixty lakhs), whereas item No.3, going by the valuation made by the
Advocate Commissioner, is worth only about Rs.71 lakhs. Learned counsel
would submit that the appellants had never bargained for such an
inequitable division and they had not agreed that item No.2 be alloted to
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the share of defendant No.2 exclusively. It is also contended by them that
the learned Arbitrator ought to have given an opportunity to the parties to
reduce the terms of compromise into writing so that there would not have
been room for any confusion or misunderstanding at a later stage. This
omission on the part of the Arbitrator is cited as a misconduct.
25. In this context, learned counsel for the appellants has invited our
attention to Section 41 of the Act which deals with procedure and powers
of court in arbitral matters. The provisions contained in Section 41
postulate that subject to the provisions of the Act and the Rules made
thereunder, the provisions of the Code of Civil Procedure shall apply to all
proceedings before the Court and to all appeals, under the Act. Learned
counsel contends that if Section 41 is read alongwith Section 47, it will be
abundantly clear that the proceedings before the arbitrator are governed
by the provisions of the Code.
26. In this context, learned counsel also invites our attention to Rule
14 of the Kerala Arbitration Rules 1977. These rules which have been
framed by the High Court of Kerala in exercise of powers vested in it under
Section 44 of the Act deal with the procedure to be followed in court in the
matter of presentation and registration of application, issue of notice and
other procedural aspects. Rule 10 deals with the manner in which an
arbitrator or Umpire has to file the award before the court. The above rule
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postulates that an arbitrator or umpire causing the award or a signed copy
thereof to be filed in court under Section 14(2) of the Act shall do so in the
manner prescribed by Rule 29 of the Kerala Civil Rules of Practice.
27. The thrust of the argument of the learned counsel is based on
rule 14 which provides that in cases not provided for in the foregoing Rules
the provisions of the Code of Civil Procedure, 1908, the Kerala Civil Rules
of Practice, 1971 and the Circulars/Orders issued by the High Court of
Kerala from time to time shall mutatis mutandis apply to all proceedings
before the court. It is contended by the learned counsel that the provisions
of the Code are applicable to all proceedings before the Arbitrator also.
He submits that the above statutory provisions in the Act and the Rules will
make it abundantly clear that the arbitrator ought to have followed the
procedure prescribed under the Act while recording the so called
consensus arrived at among the parties. In short the contention of the
appellants is that the arbitrator ought to have insisted on the parties to file
a formal application incorporating the terms of settlement or agreement.
According to the appellants, the failure of the arbitrator in following this
procedure would amount to misconduct also.
28. We are afraid, the above contentions are too far fetched and
untenable.
Rule 3 of Order XXIII Code of Civil Procedure reads thus:
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“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
satisfied 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.
29. Rule 3 postulates that 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 satisfied 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. The words “in writing and signed by the parties” in
the above Rule were introduced by Amendment Act 104/1976 with effect
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from February 1, 1977.
30. The argument that the Arbitrator was not bound to act on the
basis of the oral submissions made before him by the parties cannot be
countenanced at all. Going by the Scheme of the Act itself, it is evident
that the Arbitrator is vested with abundant powers to resolve the dispute
among the parties. The provision contained in the Act and the Rules do not
put any fetters on the powers of the Arbitrator. The Arbitrator will be
entitled to act on the basis of the submissions made before him by the
parties or their authorised representatives. Rule 14 of the Rules does not
have any application to the proceedings pending before the Arbitrator.
31. Section 41, as has been noticed already, deals with procedure
and powers of court in arbitral matters. The Kerala Arbitration Rules
framed by the High Court in exercise of the power vested in it by virtue of
Section 44 are also for the purpose of regulating the proceedings in court.
On that short ground alone, the above contention raised by the appellants
is liable to be rejected. We do so. It is held that the power of the
Arbitrator to record compromise reported by parties is not circumscribed
or curtailed by the provisions contained in Order XXIII of the Code of Civil
Procedure.
32. In Byram Pestonji Gariwala v. Union Bank of India (AIR 1991 SC
2234) it has been held by the Apex Court that the counsel representing
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the parties would be competent to sign the compromise even on implied
authority of the parties. The Court reiterated that introduction of the
words “in writing and signed by the parties” in Rule 3 cannot mean to have
watered down the authority of the counsel or recognised agent. But the
Court cautioned that it would be prudent for the counsel not to act on
implied authority, except when warranted by exigency of circumstances.
33. As has been noticed already, the bone of contention in these
appeals is only as regards item No.2. Appellants would contend that the
agreement among the parties was to divide the said item into two portions
and allot one such portion/share to the appellants in these appeals.
Arbitrator has recorded in the award in no uncertain terms that the parties
agreed before him that the firms, of which dissolution and accounting were
sought for, can be ordered to be dissolved. They further agreed before the
arbitrator that the three items of properties referred to in the award be
partitioned in lieu of settlement of the accounts of the firms.
34. After recording the above statements made by the parties who
were admittedly represented by their respective counsel, the arbitrator
proceeded to set out the manner in which the parties had agreed to divide
the three items of properties. The Arbitrator also directed, as agreed by
the parties, that plaintiff shall pay Rs.10,00,000/- to defendant Nos.3 to 6
and defendant No.2 shall pay Rs.10,00,000/- to defendant No.1. Even at
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the risk of repetition, we may state that appellants have no grouse or
complaint about allotment of item No.1 to the share of plaintiff. Similarly,
they have no complaint with regard to the allotment of item No.3 jointly to
their share. Appellants have also not raised any demur or protest about
the direction to the plaintiff and defendant No.2 to pay Rs.10,00,000/- each
to both of them. Their grouse appears to be only with regard to item No.2
which has been ordered to be divided. Appellants contend that the parties
had agreed and decided to divide item No.2 as well in a manner as
indicated in the earlier part of the judgment.
35. We find it difficult to accept the above contention, particularly,
since the appellants do not have a case that the arbitrator was actuated by
any ill motive, bias or prejudice against them. The appellants have not
made any such allegation at all against the arbitrator. What they have
indicated in the course of arguments is that such an error or mistake might
have crept in because of hurry, since the arbitrator had taken up another
engagement on that day.
36.Yet again we are not persuaded to countenance such an argument
or contention. We do not propose to assign our own reasons or rationale to
the decision taken by the arbitrator in the matter of division and allotment
of the properties. Evidently, the arbitrator had completed the exercise in
terms of the agreement arrived at among the parties. In the absence of
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any material to indicate otherwise, we do not find any reason to interfere
with the award. In our view, the court below has adverted to the above
aspect in its right perspective.
37. Coming to the question whether the arbitrator was bound to
insist on the parties to reduce the terms of agreement in to writing, our
answer is in the negative. It is unnecessary to delve deep into the
amplitude of the powers of an arbitrator appointed under the Arbitration
Act, both old and new. The scope of interference with the award of an
Arbitrator is very well delineated in the Act and Rules. It has also been
settled through a catena of decisions over the years as under what all
circumstances the court can interfere with the award passed by an
arbitrator. Learned counsel on either side have referred to a large number
of decisions in support of their respective contentions. In Kwality
Manufacturing Corporation V. Central Warehousing Corporation
[(2009) 5 SCC 142], it has been reiterated by their Lordships of the
Supreme Court that the scope of interference by courts in regard to
arbitral awards is limited. Their Lordships went on to observe thus:
“A court considering an application under Section 30 or 33 of
the Arbitration Act, 1940 does not sit in appeal over the findings
and decision of the arbitrator. Nor can it reassess or
reappreciate evidence or examine the sufficiency or otherwise
of the evidence. The award of the arbitator is final and the only
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grounds on which it can be challenged are those mentioned in
Sections 30 and 33 of the 1940 Act”.
38. Yet again in Madhya Pradesh Housing Board V. Progressive
Writers and Publishers [2009 (5) SCC 678], the apex court after
referring to a catena of earlier decisions in Ispat Engineering &
Foundry Works V. Steel Authority of India Ltd. [(2001) 6 SCC 347],
Arosan Enterprises Ltd. V. Union of India and Another [(1999) 9
SCC 449] etc. held that “the court as a matter of fact, cannot substitute its
evaluation and come to the conclusion that the arbitrator had acted
contrary to the bargain between the parties.” While agreeing with the
observation made by the apex court in Union of India V. Bungo Steel
Furniture (P) Ltd. [AIR 1967 SC 1032] the court observed that “the
court has no jurisdiction to investigate into the merits of the case and to
examine the documentary and oral evidence on the record for the purpose
of finding out, whether or not the arbitrator has committed an error of
law”.
39. Coming to the question of alleged misconduct on the part of the
arbitrator for his failure to ask the parties to file a formal petition reducing
the terms of agreement into writing, we have no hesitation to hold that the
arbitrator is not bound by any such procedural niceties or formalities. An
arbitrator is well within his powers to follow his own procedure so long as
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he does not transgress the well settled principles of equity and good
conscience and does not travel beyond the four corners of the mandate
given to him. The parties to arbitration have to be necessarily given equal
opportunity to be heard. The materials that are placed for consideration
ought to be considered by the arbitrator. His actions and decisions must
be based on principles of fairness and natural justice. We are only trying
to restate the rudimentary principles which govern arbitral process that
have been settled through a catena of decisions rendered by various High
Courts and the Apex Court.
40. Having carefully perused the entire materials available on record
and also the proceedings papers of the arbitrator, we have not found any
circumstance to indicate that the arbitrator had deviated from the terms of
agreement. When it came to the question of division and allotment of item
No.2 alone, the appellants, in hindsight, might have felt that they have
been denied a chunk of a valuable property. But the fact remains that the
award was passed way back in the year 2001. The Advocate Commissioner
had valued the property much later. Land value has been sky-rocketing
over the last few years. Therefore, there is no rhyme or reason to try to
fall back upon the valuation shown by the Advocate Commissioner in his
report and valuation statement. It may also be remembered that while
allotting item No.1 to the share of plaintiff, he was asked to pay a sum of
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Rs.10 lakhs to defendant Nos. 3 to 6. Similarly, defendant No.2 was
directed to pay Rs.10 lakhs to defendant No.1 while allotting item No.2 to
the former. Therefore, it cannot be said that the arbitrator had not
considered all pros and cons and advantages and disadvantages of the
division and allotment of the properties among the parties.
Having regard to the entire facts and circumstances of the case, we
do not find any reason to interfere with the impugned order passed by the
court below. The appeals fail and they are accordingly dismissed. But in
the peculiar facts and circumstances of the case, we direct the parties to
suffer their respective costs.
A.K.BASHEER, JUDGE
P.Q.BARKATH ALI, JUDGE
aks/jes/an