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CASE NO.:

Appeal (civil) 9420-9423 of 1995

PETITIONER:

STAR CONSTRUCTION & TRANSPORT CO. & ORS.

Vs.

RESPONDENT:

THE INDIA CEMENTS LIMITED

DATE OF JUDGMENT: 13/02/2001

BENCH:

K.G.Balakrishna, S.R.Babu

JUDGMENT:

RAJENDRA BABU, J. :

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In respect of a dispute arising out of a money claim

made by the appellants against respondent the matter was

referred to arbitration. The reference was entered into in

January 1983. The arbitrators published their award on

15.2.1986 which, after setting out certain matters which

were preliminary in nature, inter alia, stated as under :-

We J.C. Shah and P.S. Subramaniam, Arbitrators

appointed by the parties do hereby award and order that the

Company (Indian Cements Ltd.) do pay to Star Construction

and Transport Company Rs. 65,00,000 (in words Rupees Sixty

Five Lacs) in full and final settlement of the claim of Star

Construction and Transport Company with interest at the rate

of 9(nine) per cent per annum from the date hereof; and we

further award and declare that all the disputes referred to

by the parties under the claim made by the Star Construction

and Transport Company and denied by the Indian Cements Ltd.

are finally disposed of by this Award and that no part of

the claim remains undetermined; and we further award and

order that each party to bear its respective cost of and

incidental to the arbitration proceeding including its share

of the amount of remuneration paid by it to the Arbitrators.

Made this 15th day of February, 1986 at Bombay, in

token whereof the Arbitrators have subscribed their

signatures which are duly attested.

The award was filed in court on 15.4.1986 in O.P. No.

174 of 1986 under Section 14(2) of the Arbitration Act, 1940

(hereinafter referred to as the Act). A decree was passed

in terms of the award under Section 17(1) of the Act.

Thereafter, the respondent by its letter dated 8.8.1986 paid

a sum of Rs. 49 lacs while withholding a sum of Rs. 16

lacs which is stated to be money claims due to it in Suit

No. C.S. 246 of 1984 and C.S. 315 of 1984, although this

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was disputed by the appellants in their letter dated

5.8.1986. It was stated therein that a Reconciliation of

Account had been furnished to the arbitrators showing an

amount of about Rs. 16 lacs claimed to be due from them in

respect of which they had instituted the said two suits.

The respondent contended that the issues before the

arbitrators by way of several claims recorded in the award

which the arbitrators had settled did not take into account

moneys received by the appellants from it as advance and

moneys paid by them on their behalf and which stand to their

credit and accordingly credit should be given thereto. In

the two pending suits applications were filed under Order

XXIII, Rule 3 of the Code of Civil Procedure to record the

satisfaction of the suit claim and dismiss the suit with

other incidental reliefs. The learned single Judge of the

High Court who was dealing with the suits passed a judgment

on 17.4.1989 allowing the applications by holding that it

was at the instance of the respondent that the claim in the

suit was brought in before the arbitrators on 8.2.1986 and

elected to claim this set off immediately under the award to

be pronounced which was not opposed by the appellants and,

therefore, under these circumstances, instead of an award of

Rs. 81 lacs, an award of Rs. 65 lacs was made. On appeal

the Division Bench of the High Court reversed the judgment

of the learned Single Judge by holding that whether there

was a settlement or not between the parties is a matter to

be decided as an issue in the suit and that the award per se

cannot be considered as having resulted in a settlement of

suit claims.

The principal objection raised on behalf of the

respondent is that the two applications filed under Order

XXIII Rue 3 C.P.C. could not be maintained. It was also

disputed that the amounts claimed in the suits related to

the agreement dated 27.7.1979 which was not the subject

matter of arbitration. It was contended that the subject

matter of the suits could not be the subject matter of

arbitration without further submission by the parties

requesting the arbitrators to include the said matter and

factually there was no such submission. The learned single

Judge considered the case on the original statements filed

by the respondent before the arbitrators. The claim in suit

C.S. No. 315 of 1984 was for recovery of a sum of Rs.

19,75,821.60 together with interest on Rs. 14,55,625.08 and

the costs. The claim in the plaint comprised of a sum of

Rs. 9,20,452.17 being the difference between the value of

the assets taken over by the respondent and the amount was

stated to be due from the appellants to the respondent which

formed the subject matter of the agreement dated 27.7.1979

and a sum of Rs. 5,35,172.91 was said to be the liability

of the appellants on account of accrued and unavailed leave

of the workmen employed by the appellants. Other suit C.S.

No. 246 of 1984 was filed for recovery of a sum of Rs.

1,53,812.50 with interest at 12% per annum from the date of

plaint and for costs. The claim of the respondent is that

this amount represented the motor vehicles tax demanded by

R.T.O. Salem for the period from 1.4.1974 to 31.3.1982.

According to the respondent, the amount was payable by the

appellants and the respondent was obliged to pay it when the

permits for the vehicles were transferred to it. It is

after the decree in terms of the award was passed that the

appellants wrote a letter to the respondent without

prejudice referring to reconciliation statement of account

filed by the respondent before the arbitrators showing an

amount of Rs. 16 lacs claimed to be due from the appellants

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and proposing that the respondent should pay a sum of Rs.

49 lacs being approximately the amount decreed in O.P. No.

174 of 1986 less the amount claimed by the respondent. The

appellants also undertook that on such payment being made

they would not execute the decree till these two suits are

disposed of or the matter is settled in a manner acceptable

to both parties. This proposal was accepted by the

respondent without prejudice and along with a letter dated

8.8.1986 a cheque of Rs. 49 lacs was sent by the respondent

to the appellants. In that letter it was made clear that in

respect of amounts settled by the arbitrators the claims in

the two suits were not included in the settlement arrived at

by the arbitrators. The appellants suggested that both the

parties or their advocates should obtain clarifications from

the arbitrators as to whether or not the amount shown by the

respondent as due to it in the statement of reconciliation

of accounts filed before the arbitrators had been adjusted

by them in awarding the sum of Rs. 65 lacs to the

appellants. The respondent did not agree to the suggestion

as in its opinion there was no scope for obtaining any

clarification from the arbitrators as there was no ambiguity

with regard to the issue before them. The stand of the

respondent is clear that the arbitration did not pertain to

the agreement dated 27.7.1979 but only the matters arising

under the agreement dated 20.8.1974. An affidavit of Shri

P.S. Subramaniam Iyer, one of the arbitrators and two

documents were filed which are zerox copies of the

statements filed by the respondent before the arbitrators on

8.2.1986. As the original statements filed before the

arbitrators were also produced in the suit with all other

records of the arbitrators, the learned single Judge did not

rely upon the affidavit of Shri P.S. Subramaniam Iyer as he

had not been examined before the court and he ignored the

same. However, the learned Judge proceeded to consider the

case on the basis of the original statements filed by the

respondent before the arbitrators which have been produced

in the court along with O.P. No. 174 of 1986 and a letter

dated 1.2.1986 written by Shri S. Padmanabhan, who was one

of the advocates appearing for the respondent, to the effect

that the respondent had worked out loss at Rs. 72.51 lacs

subject to adjustment of amounts payable and receivable. It

was also stated that items marked 9B to 9E could not be

accepted in working out the basis for any compromise. The

learned Judge proceeded to analyse the statement of

reconciliation of account which referred specifically to a

sum of Rs. 9,20,452.17 which is one of the amounts claimed

in suit C.S. No. 315 of 1984 and the other amount claimed

for leave wages as Rs. 5,35,000/- which are set out in para

6 of the plaint in C.S. No. 315 of 1984. With reference

to the claim in C.S. 246 of 1984 the amount was split into

two paras in the statement. A sum of Rs. 30,000/- was

shown as paid to R.T.O. towards differential tax and the

balance of Rs. 1,53,812.50 was shown as a separate entry

tax arrears in respect of vehicles taken over from the

appellants paid on 28.6.1982. Thus, the learned Judge came

to the conclusion that the amount claimed in the two suits

found place in the statement of reconciliation of account.

The learned Judge thereafter referred to proceedings dated

8.2.1986 in which the list of documents attached to the

original petition submitted during the arbitration

proceedings and the description given in the list attached

to the original petition contained 21 items The last of

which is further documents of claimant and respondent

compromise proposal and reconciliation of Accounts by

respondent. On this basis, the learned Judge found that it

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was clear that the arbitrators have taken into account the

statement of reconciliation of account filed by the

respondent before passing the award. The learned Judge

proceeded to observe that the arbitrators would not have

taken the statements on record but returned the same to the

respective parties and proceeded without any reference to

the said statement and, therefore, the respondent was taking

undue advantage of the fact that the award is a non-speaking

one. The learned Judge relying upon the decision of this

Court in Smt. Santa Sila Devi and another v. Dhirendra

Nath Sen and others, AIR 1963 SC 1677, held that the award

finally disposed of all the matters in difference inasmuch

as there is an express declaration by the arbitrators to

that effect and no part of the claim remained undetermined.

The learned Judge also gave further findings that when the

appellants had approached the arbitrators with a particular

claim and the respondent in defence put forth its claim

arising out of the same contract but crystalised to a large

extent by the agreement dated 27.7.1979 which, in fact, set

off before the arbitrators there was no necessity for

submission of a fresh or independent reference, much less

through court and relied upon the following passage in

Russell on Arbitration, 9th Edn, at pages 102 and 103 :-

It has been often held that a submission by A and B

of the one part and C of the other, of all matters in

difference between them authorises the arbitrator to decide

on all matters that either of the two has against the third

jointly or severally, such as an action by A alone against

C, on the ground that the words are to be taken

distributively. This view was adopted in the Court of

Exchequer and affirmed in the Exchequer Chamber Six

partners by two bonds submitted to arbitration all matters

relating to their trade. By the one bond three of them

became jointly and severally bound to the other three to

obey the award as to all matters between the partners or any

of them. But the second bond the latter three became bound

to the former three in like manner. It was held that the

arbitrator was authorised to award on a matter in dispute

between two co- obligators only, on the ground that the

reference was of all matters between them or any of them

Winter v. White (1819) IB & B 350.

A reference of all matters in difference gives an

arbitrator power over all matters down to the period of the

submission, but does not except under very special

circumstances, enable him to award on future and contingent

claims, or to give damages in respect of money demands

becoming due after the date of the submission, though

pursuant to an agreement made previous to it, or indeed

respecting any subjects of dispute arising after the

reference.

Even if the submission be of all differences and of

anything in anywise relating thereto these latter words do

not extend the power of the arbitrators to matters which

though relating to the existing differences, arise after the

date of the submission nor do they authorise the calculation

and awarding of interest subsequent to that date.

The parties may, however, if they please give the

arbitrator power to determine on contingent claims, or on

matters in dispute or demands arising after the date of the

submission and this course has often been perused.

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The learned Judge, therefore, held that it was open to

the arbitrators to arbitrate the same. Alternatively, the

learned Judge proceeded to state that even if the reference

was limited, it was open to the parties to enlarge the scope

thereof as it was not a reference made by a court. The

statements in writing filed by the parties before the

arbitrators were sufficient to serve the purpose and the

absence of signature of any representative of the respondent

does not at all matter. The learned Judge also proceeded to

consider that the respondent had elected to claim set off

before the arbitrators and having chosen to work out that

remedy it is not open to the respondent to pursue the same

by ignoring the award. It was held that the respondent

having obtained the benefit under the award, namely, the

adjustment of the amounts due from the appellants as against

the amounts found payable to the appellants, it is not open

to the respondent to challenge the validity of the award in

the proceedings, particularly when the appellants had not

raised any objection to a decree being passed by the court

in terms of the award. Appeals were filed before the

Division Bench of the High Court by the respondent, which

were allowed relegating the parties to thrash out the

question whether there is a settlement or not between the

parties is a matter to be decided as an issue in the suit

and that the award per se cannot be considered as having

resulted in a settlement of the suit claim. These appeals

are directed against that order of the Division Bench of the

High Court. Shri F.S.Nariman, learned senior Advocate for

the appellants, submitted that if the conclusion is that the

award has resulted in a settlement of the suit claim, the

court ought to have given a finding that there was a

settlement between the parties and hence nothing remains in

the suit to be decided. He focussed his attention mostly to

the question that the award on the face of it indicates the

settlement of the suit claim. To support this proposition,

he heavily relied upon the view expressed by the learned

Single Judge while disposing of the suits on the basis of

the applications filed under Order XXIII, Rule 3 CPC to

which we have made elaborate reference. He submitted that

the fact is that the reference to the arbitration was made

in pursuance of clause 24 of the agreement dated 20th

August, 1974 as a private reference validly made without the

intervention of the court. He submits that clause 24 is

very wide in its terms to include all questions of

difference whatsoever touching upon the agreement or subject

matter thereof or arising out of or in relation thereto and

whether as to construction of the agreement or otherwise.

When the appellants approached the arbitration with a

particular claim, the respondent in defence thereto put

forward its claim arising out of the same contract but

crystallised to a large extent by the agreement dated

27.7.1979. The later agreement between the parties emerged

only out of the earlier contract which was the foundation of

the transaction between the parties. The respondent pleaded

only a set off or a counter-claim before the arbitrators

while defending the claim put forward by the appellants.

Thus there was no necessity for submission of a fresh or

independent reference and much less through a Court. The

fallacy in this approach is that when the reference was made

in respect of the disputes arising out of the agreement

dated 20.8.1974 and those disputes had to be settled no

claim by way of set off or a counter-claim was raised by the

respondent herein. It is only at the last stage of the

proceedings a reconciliation statement is stated to have

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been filed which, it is said, has reference to certain

claims made in the two suits and those claims are stated to

have been taken into consideration in the non-speaking award

in deciding the claims of the parties by the arbitrators.

In the case of a non-speaking award, trite to say that the

mental process of the arbitrators in reaching the conclusion

cannot be gone into or examined as the same are not

disclosed in the award. Therefore, to glean into the minds

of the arbitrators to find out whether they included the

claims stated to have been made in the reconciliation

statement is a very torturous process, not an easy one,

hazarded with too many difficulties. To get out of such a

quagmire Shri Nariman very astutely contended that there was

a reference to the documents filed in the case and the

reconciliation statement is one such which was also produced

before the court when the award was filed for passing the

decree in terms thereof which would indicate that this was

present to the minds of the arbitrators. Whether it is so

or not can only be imagined and not definitely inferred from

the facts. Therefore, this line of reasoning adopted by the

learned Single Judge does not appeal to us nor are we

impressed with the alternative view taken by him that even

assuming that the scope of the original reference was

limited, it was open to both parties to enlarge the same

before the arbitrators as it was not a reference made by a

court. Even if it were so, there is no way of finding out

the rationale on which the arbitrators passed the award.

Though it may have been permissible to refer such a dispute,

whether in fact done so, is the question. That is a matter

which is under serious dispute between the parties. Shri

Nariman pointed out the conflict in decisions in relation to

the question whether the matters in difference in a pending

suit can be referred to the arbitration without the order of

the court and when the same would result in settlement of

claim in the suit. However, that aspect also does not arise

for consideration at this stage of the proceedings. We may

also notice that the learned Single Judge is of the view

that the respondent having taken advantage of the award

which, in fact, took note of the reconciliation statement

they are estopped from contending that there is no

significance of the suit claims in the arbitration

proceedings. Again, this view proceeds on the basis of

award being made after taking note of the reconciliation

statement, which conclusion we have pointed out to be

slippery. Hence this aspect also does not assist the

appellants.

In this case, applications are filed under Order

XXIII, Rule 3 CPC. This rule is a provision for making a

decree on any lawful agreement or compromise between the

parties during the pendency of the suit by which claim is

satisfied or adjusted. The agreement, compromise or

satisfaction may relate to the whole of the suit or part of

the suit or it may also include matters beyond the subject

matter of the suit. But Rule 3 clearly envisages a decree

being passed in respect of part of subject matter on a

compromise. Whether in fact there has been compromise or

adjustment of the suit claim or any part thereof is itself

put in dispute in this case. Unless it is clearly

established that such accord or compromise has been entered

into between the parties, the powers under Order XXIII Rule

3 CPC could not be exercised. The respondents case is that

the claim made in the suit were never before the arbitrators

in any form and even the figures mentioned in the

reconciliation statement also do not pertain to the suit

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claim and the scope of reference to the arbitrators does not

enable them to make an award on that aspect of the matter.

Those objections have to be dealt with appropriately on full

trial. That is the course now adopted by the Division Bench

of the High Court. Although many other arguments were

addressed before us as to the scope of the proceedings

before an arbitrator as to how in the course of arbitration,

additional claims can be raised before them and an

adjudication thereof, if results, an award is binding on

parties. These aspects also do not help the appellants in

any manner for we find that there must be factual foundation

for those claims and established in the course of a trial.

Uninfluenced by the views of the Division Bench we have

examined the correctness of the order of the learned Single

Judge made in the two suits on applications filed under

Order XXIII Rule 3 CPC and we are clearly of the opinion

that the order of the learned Single Judge cannot be

sustained. The Division Bench of the High Court has not

shut out the case put forth by the appellants but only

relegated the parties to work out their respective rights in

an appropriate manner in the course of a suit. Therefore,

we find no merit in these appeals and the same shall stand

dismissed. The parties shall bear their own costs.