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Firm Nanak Chand v. Lala Pannalal
Factual and Procedural Background
The plaintiff, Lala Panna Lal (carrying on business as Basant Lal Panna Lal), sued several defendants (including a firm Nanak Chand and Sons which traded in Biris and cigarettes, and Dr. Sheo Shankar) alleging that between October 1946 and early December 1947 he had advanced loans totalling Rs. 21,931/15/- to the defendants; payments of Rs. 17,017/- were credited and a balance of Rs. 4,914/15/- remained outstanding. The plaintiff alleged that security in the form of pledged Biris and cigarettes had been taken.
Dr. Sheo Shankar denied connection with the trading firm and said he practiced medicine in Hathras. Other defendants denied the plaintiff’s account entries and alleged that the value of pledged goods exceeded the advances.
During the suit the parties applied for reference to arbitration on 17-3-1949. Panches were appointed and an award dated 5-9-1949 was made: a decree against defendants (Dr. Sheo Shankar, Laxmi Narain, Ram Narain and Babu Lal Sharma) for Rs. 34,127/13/-. The award allowed the plaintiff to utilize Rs. 850 then in court and to realise a stated balance (the award text referred to a balance of Rs. 2,562/13/- recoverable from any of the four defendants), provided no interest on the decretal amount and restricted realisation to ancestral joint-family property, not separate assets of Dr. Sheo Shankar.
Objections to the award were filed by the parties. On 23-11-1949 several counsels, including counsel for the plaintiff and for some defendants, stated that the arbitration award should be cancelled. On 25-11-1949 the counsel for defendant No. 5 (Babu Lal Sharma) stated that he had "no instruction" from his client. The learned Civil Judge recorded an order on 25-11-1949 setting aside the award and fixed 7-3-1950 for further proceedings.
The trial resumed before the Civil Judge who, after hearing evidence, exempted Dr. Sheo Shankar (defendant No. 2) and entered a decree for Rs. 6,043/- with proportionate costs and pendente lite and future interest at 6% p.a. against defendants Nos. 1, 3 and 4. Defendant No. 5 (Babu Lal Sharma), a surety, was held liable to the extent of Rs. 2,500/-; the suit against Dr. Sheo Shankar was dismissed.
The defendants appealed. On 24-11-1961 the appellants' counsel was permitted to raise an additional ground challenging the legality of the Civil Judge's setting aside of the arbitration award merely on the parties' consent; the appellants also offered to pay the amount decreed by the arbitrators. The plaintiff's counsel did not accept that offer and defended the Civil Judge's order.
Legal Issues Presented
- Whether an arbitration award can lawfully be set aside by the Court merely because the parties (or their counsels) state that they want the award cancelled.
- What is the proper scope and interpretation of section 30 of the Arbitration Act, 1940 (i.e., whether the Court may set aside an award only on the grounds specified in that section).
- Whether section 33 of the Arbitration Act, 1940 confers on the Court a broader power to set aside an award on grounds other than those listed in section 30.
- Whether a counsel's statement that he has "no instruction" from his client can be treated as consent to setting aside an award.
Arguments of the Parties
Appellants' Arguments
- The learned Judge below had illegally set aside the arbitration award merely because the parties (through their counsels) consented to its cancellation; such consent alone does not furnish a lawful ground to set aside an award.
- Counsel for the appellants relied on the precedent Bachcha Lal v. Mannu Lal, AIR 1937 Oudh 507 to support the proposition that courts cannot set aside awards on grounds other than those permitted by law.
- The appellants were prepared to offer to pay the amount decreed by the arbitrators (as an alternative to the trial court's decree).
Respondent's Arguments
- The plaintiff/respondent's counsel contended that the award was rightly set aside because all parties to the award had consented to that course (i.e., consent justified cancellation).
- The respondent further argued that section 33 of the Arbitration Act, 1940 — which prescribes the procedure when an application is made challenging an award — implied that the Court had broad power to set aside an award and that such power was not confined strictly by the grounds listed in section 30.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Bachcha Lal v. Mannu Lal, AIR 1937 Oudh 507 | Supports the proposition that a Court has no jurisdiction to set aside an arbitration award on grounds other than those specified by law (the decision turned on clause 15(1) of Schedule II of the CPC 1908 and rejected consent alone as a valid ground). | The Court held that this precedent "fully supports" the appellants' contention and used it to reinforce the interpretation that the Court cannot set aside an award merely because the parties ask it to; an award can be set aside only on statutory grounds (as in section 30 of the Arbitration Act, 1940). |
Court's Reasoning and Analysis
The Court analysed the legality of setting aside an arbitration award by reference to the Arbitration Act, 1940 and to prior authority. It identified section 30 of the Arbitration Act, 1940 as the key provision governing when an award may be set aside. The section, quoted in the opinion, enumerates three specific grounds on which "an award shall not be set aside except on one or more of the following grounds, namely":
- (a) that an arbitrator or umpire has misconducted himself or the proceedings;
- (b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under section 35;
- (c) that an award has been improperly procured or is otherwise invalid.
The Court emphasised that the language of section 30 is imperative and parallel to the language of clause 15(1) of Schedule II of the CPC considered in Bachcha Lal. Consequently, the Court concluded that section 30 confines the Court's jurisdiction to specified grounds: the Court cannot set aside an award on other bases, such as mere consent of parties.
The opinion addressed the respondent's contention based on section 33 of the Arbitration Act (which prescribes the procedure to be followed when an application challenging an award is made). The Court rejected the argument that section 33 provides an independent or broader substantive power to set aside awards beyond the grounds enumerated in section 30. The Court held that section 33 relates to procedure, whereas section 30 limits the substantive grounds available for setting aside an award; the two sections must be read together. If section 33 were read to give broader power, the imperative limitation of section 30 would be nullified.
The Court further examined the factual record about consent: while counsel for the plaintiff and several defendants stated the award be cancelled, there was no indication that defendant No. 5 (Babu Lal Sharma) consented; his counsel stated on the record that he had "no instruction." The Court found that this statement could not be treated as consent by the defendant. Thus, the Civil Judge erred both legally (by relying on consent as a basis to set aside the award) and factually (in asserting that "all parties" wanted the award set aside).
Given that the learned Civil Judge set aside the award without adjudicating the objections on the merits under the statutory grounds of section 30, and then proceeded to try the suit and pass a decree, the Court concluded that the decree was vitiated by that error.
Holding and Implications
Core Ruling: The appeal is allowed; the decree of the learned Civil Judge is set aside and the case is remanded to the learned Civil Judge for further proceedings.
Direct consequences and orders given by the Court:
- The suit is to be restored to its original number.
- The learned Civil Judge is directed to consider the objections filed by the parties to the arbitration award on their merits, and if satisfied that one or more of the statutory grounds in section 30 of the Arbitration Act, 1940 are made out, to set aside the award accordingly; otherwise to proceed and decide the suit according to law.
- Because the appellants raised the successful ground late, the Court ordered that the appellants should not be awarded costs; accordingly, the parties will bear their own costs of the appeal.
- The appellants were granted a certificate authorising refund by the Collector of the full amount of court-fee paid on the memorandum of appeal in this Court.
Legal implication stated by the Court: an arbitration award cannot be set aside merely because the parties (or their counsels) desire its cancellation; the Court's power to set aside an award is confined to the grounds expressly enumerated in section 30 of the Arbitration Act, 1940, and procedural provisions (such as section 33) do not expand those substantive grounds.
1. This is a defendants' appeal against whom a decree for recovery of a sum of Rs. 6,043/- with proportionate costs, pendente lite and future interest has been passed. The plaintiff respondent Lala Panna Lal filed a suit against the defendants appellants and one Dr. Sheo Shankar who is not an appellant before this Court on the allegation that the plaintiff carried on business in the name of Basant Lal Panna Lal and the defendants carried on the business in the sale and purchase of Biris and cigarettes through their firm named Nanak Chand and Sons, that the defendant firm used to take money in cash as loan from the plaintiff at the interest of annas-/12/- per mensem and in lieu of that used to pawn their Biris and cigarettes with the plaintiff.
2. It was further alleged that between October, 1946, and the beginning of December, 1947 the plaintiff had advanced loans amounting to Rs. 21,931/15/- to the defendants; that the defendants paid a sum of Rs. 17,017/- towards the loan which were duly credited in the name of the defendants in the account books of the plaintiff's firm and a sum of Rs. 4914/15/- was still outstanding against the defendants which despite repeated requests and demand the defendants failed to pay, hence the suit. Dr. Sheo Shankar one of the defendants in his written statement pleaded that he had been carrying on the profession of a medical doctor in Hathras and he had no concern with the joint family firm styled as Nanak Chand and Sons dealing in Biris and cigarettes. He further denied that he was a member of the joint family which carried on the business of Biris and cigarettes.
3. The other defendants denied the plaintiff's claim and the defence in the main was that they did not take any loans as such from the plaintiff and the transactions were not done in the manner as alleged by the plaintiff. It was further pleaded that the entries in the account books of the plaintiff were wrong and in fact Biris and cigarettes of a larger value were pledged with the plaintiff's firm than the money advanced by them on that security and nothing was due to the plaintiff.
4. It appears that during the pendency of the suit the parties referred the dispute to arbitration after making an application to the Court on 17-3-1949. Lala Ganga Saran Bajaj, Sri Ishwari Prasad Bajaj and Sri Ramnath Poddar, residents of Hathras were appointed as Panches and the arbitrators gave their award dated 5-9-1949 by which a decree against the defendants, namely. Dr. Sheo Shankar, Laxmi Narain, Ram Narain and Babu Lal Sharma was passed for a sum of Rs. 34127/13/-.
5. The award further provided that the plaintiff could utilize Rs. 850/- which were in deposit in Court representing the sale price of Biris and the balance of Rs. 2562/13/- could be realised from any of the four defendants. It was also provided in the award that no interest was to be charged on the decretal amount and the decretal amount could only be realised from the ancestral property belonging to the joint family and not from the separate assets or the property of Dr. Sheo Shankar.
6. All the four defendants against whom the decree was passed by the arbitrators and the plaintiff filed objections to the award the grounds on which the award was challenged mainly; attributed misconduct on the part of the arbitrators in the proceedings carried on by them. It is not necessary for me to mention those grounds in detail or to express any opinion on the same. The proceedings of the Court show that on 23rd November, 1949, Sri Dharampal Varshiny, counsel of the plaintiff, Sri Mahendra Prasad, counsel for the defendants numbers 3 and 4 and Sri Ram Narain Misra, counsel for defendant No. 2 stated that the arbitration award be cancelled.
7. On 25th November, 1949, Sri Mohammad Ismail counsel for defendant No. 5, stated that he had no instruction from his client in the matter. On the same day the learned Civil Judge passed an order which is paper No. 8-A2 on record and which is to the effect that all parties want that award should be set aside and he accordingly set aside the award and fixed 7th March, 1950, for further proceeding in the suit. The trial in the suit then proceeded before the learned Civil Judge and after a consideration of evidence on record he exempted Dr. Sheo Shankar defendant No. 2, and passed a decree for a sum of Rs. 6,043/- with proportionate costs and pendente lite and future interest at 6 per cent per annum against defendants numbers 1, 3 and 4. The learned Judge further directed that defendant No. 5 Babu Lal Sharma who was a surety was liable to the extent of Rs. 2500/- out of the amount of Rs. 6043/- decreed. The suit against Dr. Sheo Shankar defendant No. 2 was dismissed.
8. In appeal before me the learned counsel for the appellants on 24-11-1961 filed an application for leave to urge a further ground challenging the decree of the Court below on the basis that the learned Judge had illegally set aside the award merely on the consent of the parties and the learned counsel also made a statement that the defendants appellants were prepared to pay to the plaintiff the amount decreed by the arbitrators. As the ground which was sought to be urged by the learned counsel for the appellants went to the root of the matter. I allowed that ground to be raised. The learned counsel for the respondent took time more than once for taking instructions from his client, namely, the plaintiff respondent whether he was agreeable to accept the ofter of the counsel for the defendants appellants and receive the amount decreed in the award. The learned counsel for the plaintiff respondent appeared before me today and he is not in position to state on behalf of his client that he is agreeable to receive the amount decreed by the award and he has contended that the award was rightly set aside as all the parties to the award had consented to that course.
9. The learned counsel for the defendants appellants has drawn my attention to the fact that Sri Babu Lal Sharma, defendant No. 5 was not a consenting party to the setting aside of the award in question. I have already mentioned above the statement made by the learned counsel of defendant No. 5 Babu Lal Sharma on 25th November, 1949, in which it was stated that the learned counsel had not received any instructions. It is clear, therefore, that while the counsel for the plaintiff and the respective counsel for defendants numbers 2, 3 and 4 had made a statement that the award be cancelled, there is nothing on the record to show that the defendant No. 5 Babu Lal Sharma had also consented to that course. The learned Civil Judge was in error when on 25th November, 1949, in his order he stated that all parties wanted that the award should be set aside.
10. It has been submitted by the learned counsel for the appellants that an award could not be set aside merely on the ground that the parties to the award desired or agreed to its cancellation, Reliance has been placed by the learned counsel on the case of Bachcha Lal v. Mannu Lal, AIR 1937 Oudh 507.
11. The decision in the said case, to my mind, fully supports the contention of the learned counsel. The decision turned on the language of clause 15(1) of Schedule (II) of the CPC 1908 and their Lordships held that the Court had no jurisdiction to set aside an award on and ground other than those specified in the said clause and repelled the argument that as one of the parties to the award wanted it to be set aside and the other party did not object, it could be a valid ground for setting aside the award.
12. In the present case I am concerned with section 30 of the Arbitration Act of 1940. Section 30 of the Arbitration Act of 1940 is as follows:
“An award shall not be set aside except on one or more of the following grounds namely:—
(a) that an arbitrator or umpire has misconducted himself or the proceedings;
(b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under section 35;
(c) that an award has been improperly procured or is otherwise invalid.”
13. It would be seen from the language of the above section that three grounds have been mentioned on which the award can be set aside. The language is imperative and is similar to that of clause 15(I) of Schedule (II) of the CPC. The learned counsel for the respondent has not been able to show me any provision under the Arbitration Act of 1940 in support of his proposition that it was open to the learned Civil Judge to ignore the award in the circumstances of the case when all the parties to the award desired it to be cancelled.
14. The counsel for the respondent contended that under section 33 of the Arbitration Act of 1940 when any application is made by any party challenging the validity of an award the Court shall decide the question and it implies that the Court has ample power to set aside the award on any grounds other than mentioned in section 30 of the Act and the power and jurisdiction of the Court is not necessarily confined to the grounds mentioned in the latter section. In effect the learned counsel's argument is that the power and the jurisdiction of the Court under section 33 of the Act is not controlled by the provisions of section 30 of the Act. I do not see any force in the contention of the learned counsel of the respondent.
15. To my mind section 33 relates to the procedure which has to be adopted for getting an award set aside, while section 30 confines the power or jurisdiction of the Court to which an application is made for setting aside an award on the grounds mentioned in that section. The two sections have to be read together and if what is contended for by the learned counsel for the respondent is correct, then the imperative language of section 30 of the Act that an award shall not be set aside except on one or more of the grounds, sanctioned in section 30 would lose all force and the object of that provision would be defeated as it will extend the power of the Court to set aside the award on any ground other than those mentioned in section 30 of the Act.
16. I, therefore, hold that the learned Civil Judge was in error in setting aside the award merely on the statements of the respective counsel for the parties. Moreover, one of the parties to the award, namely, defendant No. 5 Babu Lal Sharma, as observed above, had not consented and the statement of his counsel that he had no instructions in the matter could not be interpreted as consent on the part of defendant No. 5 for the cancellation of the award.
17. It was the duty of the learned Civil Judge to have considered the objections filed by the parties to the award on merits and if he were satisfied that a case was made out for setting aside the award on any one or more of the grounds mentioned in section 30 of the Arbitration Act, 1940, it is only in that circumstance that he could set aside the award and then proceed further with the suit. He has not done so and having proceeded on with the suit without examining the objections on merit, the decree passed by him, in my opinion, is vitiated and is against law. I think I have no option but to set aside the same.
18. For the reasons given above, I allow this appeal, set aside the decree of the learned Civil Judge and remand the case back to the Court of the learned Civil Judge.
19. I direct that the suit be restored to its original number and the learned Civil Judge should proceed to consider the objections filed by the parties to the award in question on merits and then decide the suit according to law.
20. As the ground on which this appeal has been allowed was taken at a late stage, I think that the appellants should not be awarded costs. It is accordingly ordered that the parties will bear their own costs of this appeal.
21. The learned counsel for the appellants has prayed for an order for the refund of the court-fee paid by the appellants on the memorandum of appeal in this Court. I think the request is reasonable and I grant a certificate to the appellants authorising them to receive back from the Collector the full amount of court-fee they paid on the memorandum of appeal in this Court.
JF/J/D.H.Z
22. Appeal allowed.
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