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  • Section 32 of the Indian Arbitration Act. Section 32 of the Arbitration Act
  • Section 32 of the Indian Arbitration Act.
  • Section 17. Section 32
  • SPECIFIC RELIEF ACT
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  • Section 32 of the Indian Arbitration Act. Section 32 of the Arbitration Act
  • Section 32 of the Indian Arbitration Act.
  • Section 17. Section 32
  • SPECIFIC RELIEF ACT
Smart Summary

Structured Summary of the Opinion — Second Appeal (O.S. No. 290 of 1953)

Factual and Procedural Background

The plaintiff in O.S. No. 290 of 1953 (filed in the District Munsif, Ranipet) is the appellant in this Second Appeal. The plaintiff sued for specific performance of a contract of sale and for possession of the suit property. The plaintiff alleged that on 25 December 1949 he and the defendant entered into an agreement whereby, in consideration of the plaintiff giving up certain debts and conveying a half share in a site to the defendant, the defendant would convey the suit property to the plaintiff by a registered sale deed before 12 June 1950.

The defendant denied the alleged agreement and pleaded that the plaintiff had obtained his signatures fraudulently on some documents. At trial, the plaintiff sought to prove the alleged agreement by filing an arbitration agreement (Exhibit A-1), an accompanying decision or award (Exhibit A-1(a)), and an endorsement made on that decision by both parties.

The learned District Munsif found that the defendant's signatures on the arbitration agreement and the endorsement on the award were taken under duress and without disclosure of contents, declared the agreement in the plaint to be neither true nor valid, and dismissed the suit.

On appeal, the learned District Judge held that the critical issue was whether the suit as framed was maintainable and concluded that, even assuming validity of the arbitration agreement and award, the suit was barred by Section 32 of the Indian Arbitration Act. The District Judge relied on the decision in Moolchand Jothajee v. Rashid Jamshed Sons & Co. and held that the endorsement made on the award created no independent rights and that enforcement would necessarily require inquiry into the award, which Section 32 bars. The appellate Judge dismissed the appeal.

Legal Issues Presented

  1. Whether the suit is barred under Section 32 of the Indian Arbitration Act.
  2. Whether an endorsement on an arbitration award (or "decision") can constitute an independent, enforceable agreement not covered by Section 32.

Arguments of the Parties

Appellant's Arguments

  • The plaintiff (appellant) sought specific performance based on an agreement said to have been made on 25 December 1949 and relied upon the arbitration agreement, the decision/award and an endorsement on that decision to prove the agreement.
  • The appellant contended that the relief sought was not enforcement of the arbitration agreement or the award itself, but enforcement of an agreement endorsed on the decision/award — i.e., that the endorsement formed a separate, enforceable contract which was not hit by Section 32.

Respondent's Arguments

  • The defendant (respondent) denied the existence of the alleged sale agreement and pleaded that the plaintiff obtained his signatures fraudulently.
  • Before the District Judge it was contended (and relied upon) that the suit was barred by Section 32 of the Arbitration Act because the plaintiff's claim ultimately depended upon the arbitration agreement/award; the endorsement did not create independent rights and any enforcement would require inquiry into the award.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Moolchand Jothajee v. Rashid Jamshed Sons & Co. (1946) 1 M.L.J. 185; I.L.R. (1946) Mad. 480 That a suit based on a claim that an award has become final and asking for a decree in terms of the award is barred by Section 32 of the Arbitration Act. The appellate court accepted that a suit to enforce an award (i.e., one asking for a decree in terms of the award) is barred by Section 32, but distinguished that precedent on the facts of the present case where the suit sought enforcement of an agreement endorsed on a decision rather than enforcement of the award itself.
Bai Narbadabai v. Natvar Lal Chunilal, I.L.R. (1953) Bom. 851 Recognized that a suit filed to enforce an award (as conceded in that case) is not a suit to enforce an agreement independent of the award and is therefore barred under the statutory prohibition. The court cited this authority to support the proposition that suits aiming to enforce an award itself are barred by Section 32, but again distinguished it because the present suit was said to be to enforce an endorsement/agreement whose enforceability did not depend on the award being enforceable as an award.

Court's Reasoning and Analysis

The Court framed the central statutory provision and its proper scope. Section 32 of the Arbitration Act provides that no suit shall lie for a decision upon the existence, effect or validity of an arbitration agreement or award. The Court examined relevant definitions and provisions in the Act (Section 2(a), Section 14 and Section 17) to understand what constitutes an "award" for the purposes of Section 32.

The Court reasoned that the word "award" in Section 32 must be read as referring to an award that may be filed in Court under Section 14 and which can give rise to a decree under Section 17. Consequently, Section 32 applies only where an award (within the meaning of Section 14) forms the basis of the relief claimed in the suit.

The Court then analysed the legal effect of an agreement endorsed on an award or decision. Two hypothetical scenarios were considered to illustrate the principle:

  • Where a valid award is made and the parties thereafter endorse a modification on the award (thereby creating an agreement which supersedes the award), the endorsement can create an independent contract enforceable by suit; Section 32 would not bar such a suit because the claim is based on the endorsed agreement, not on the award itself.
  • Where a purported award is of no effect as an award (e.g., because it was made by an improperly constituted tribunal) but the parties, knowing its invalidity as an award, endorse and adopt it by agreement, that endorsement can give rise to enforceable rights even though the original "award" is ineffective; again Section 32 would not bar a suit to enforce the endorsement if the plaintiff's right does not depend on the award's validity.

Applying these principles to the present case, the Court observed that the arbitration agreement (Exhibit A-1) referred disputes to thirteen arbitrators and bound the parties only by a unanimous decision. The decision actually signed (Exhibit A-1(a)) was signed by ten arbitrators (including the writer Doraisami) — i.e., it was not an award capable of being filed under Section 14. The parties then endorsed acceptance of that decision. Thus, if the defendant signed that endorsement freely and voluntarily and with full knowledge that the decision was not enforceable as a Section 14 award, the suit to enforce the endorsement would be maintainable because the plaintiff's right would not be dependent on the award's validity.

The Court also noted that the District Judge had not made findings on whether the endorsement was given freely and voluntarily or whether the Court should exercise its discretion under the Specific Relief Act to enforce the agreement. For these reasons, the appellate Court concluded that the District Judge's judgment could not stand without further fact-finding and legal consideration in light of the principles articulated.

Holding and Implications

Holding: The appellate Court set aside the judgment and decree of the District Judge and ordered that the appeal be restored to its original number and disposed of afresh in the light of the Court's observations.

Immediate consequences ordered by the Court:

  • The judgment and decree of the District Judge are set aside and the appeal is to be restored and reheard.
  • The Court-fee paid on the memorandum of Second Appeal will be refunded to the appellant.
  • The respondent is ordered to pay the remainder of the appellant's costs.
  • Leave to file the Second Appeal was granted.

Broader implication drawn by the Court (limited to the opinion's text): The Court clarified the scope of Section 32 — it applies only where an arbitration agreement or an award (one that is capable of being filed under Section 14 and enforced under Section 17) forms the basis of the relief claimed. An agreement endorsed on a decision or award that either supersedes the award or is independent of the award's enforceability may be enforced by suit, provided the plaintiff's right does not depend on the validity of the award. The District Judge must determine, on the facts, whether the endorsement was given freely and whether the Court should enforce it under the Specific Relief Act.

This summary is strictly limited to the materials and statements contained in the provided opinion. No facts, rulings, or inferences beyond the text of the opinion have been added.

    The Duraiswami Naidu v. Kishtappa Naidu

    1. The plaintiff in O.S. No. 290 of 1953 on the file of the District Munsif, Ranipet, is the appellant in this Second Appeal.

    2. The suit was for specific performance of a contract of sale entered into by the defendant-respondent and for possession of the property agreed to be conveyed. The plaintiff alleged that on 25th December, 1949, he and the defendant entered into an agreement that, in consideration of the plaintiff giving up certain debts owing to him by the defendant and his father, and the plaintiff conveying to the defendant a half share in a site, the defendant would convey the suit property to the plaintiff by a registered sale deed before 12th June, 1950.

    3. The defendant denied the alleged agreement. He pleaded that the plaintiff had taken his signature fraudulently .on some documents.

    4. During trial, the agreement alleged in the plaint was sought to be proved by filing the arbitration agreement, Exhibit A-1, a decision or award by some of the arbitrators, Exhibit A-1 (a) and the endorsement made on that decision by the plaintiff and the defendant.

    5. The learned District Munsif found that the defendant's signatures which appeared in the arbitration agreement and in the endorsement made on the award were taken under duress, without disclosing to him the contents of those documents. The District Munsif held that the agreement set up in the plaint was neither true nor valid and dismissed the suit.

    6. In appeal, the learned District Judge held that it was not necessary to go into the question whether the signatures of the respondent appearing in the arbitration agreement and in the endorsement on the award had been taken in circumstances of duress and fraud. Issue 4 framed in the suit was, whether the suit as framed was maintainable ? That was the only issue which, according to the learned Judge, needed consideration. He said that, even assuming that the arbitration agreement' and the award were valid and binding on both parties, the suit was barred by Section 32 of the Indian Arbitration Act. For that proposition, he relied on Moolchand jothajee v. Rashid Jamshed Sons and Co (1946) 1 M.L.J. 185 : I.L.R. (1946) Mad. 480. It was strenuously urged before him that the plaintiff was not seeking relief on the basis of the arbitration agreement, or the award and that the relief sought was enforcement of the agreement that had been endorsed on the decision or the award. In regard to that argument, namely, that the endorsement made on the " award " formed a separate, enforceable contract, which was not hit at by the provisions of section 32, the learned Judge said that the endorsement created no independent rights or obligations and that any attempt to enforce that endorsement would necessarily bring into question the existence of the award, the terms of the award and their validity, and that an investigation of those questions was barred by Section 32 of the Indian Arbitration Act. In that view, the learned appellate Judge held that the suit was not maintainable and dismissed the appeal.

    7. The point for determination is whether the suit is barred under Section 32 of the Indian Arbitration Act.

    Section 32 of the Arbitration Act enacts:

    Notwithstanding any law for the time being in force, no suit shall lie on any ground whatsoever for a decision upon the existence, effect or validity of an arbitration agreement or award.

    Section 2(a) of the Act states that an award means an arbitration award. To ascertain what an arbitration award is, we should turn to Section 14 of the Act. It says:

    (1) where the arbitrators or umpire have made their award, they shall sign it and shall give notice in writing to the parties of the making and signing thereof....(2) The arbitrators or umpire shall, at the request of any party to the arbitration agreement or any person claiming under such party or if so directed by the Court and upon payment of the fees and charges due in respect of the arbitration and award and of the costs and charges of filing the award, cause the award or assigned copy of it, together with any depositions and documents which may have been taken and proved before them, to be filed in Court....

    8. The Court may, under Section 17 of the Act, pronounce judgment and pass a decree in accordance with the award.

    9. The word ' award ' in Section 32, has in my opinion, to be read as referring only to an award which may be filed in Court under Section 14 and in accordance with which a decree may be passed under, Section 17. Section 32 can be invoked in regard only to a suit in which an award, which may be filed in Court under Section 14, forms the basis of the relief claimed.

    10. Let us take a case where an award is validly made by arbitrators appointed under an arbitration agreement. Let us suppose that, after the award is made, the parties to the agreement consider the award not completely satisfactory, and endorse on the award an agreement that they would abide by the terms of the award, subject to the modifications set out in that endorsement. If, thereafter, one of the parties resiles from the agreement endorsed on the award, would a suit lie to enforce the agreement ? The answer is clearly in the affirmative. The award itself cannot be filed in Court, because it has been superseded by the agreement endorsed on the award. But the award would have to be proved for the purpose of proving the terms of the agreement. The agreement endorsed on the award would be un-understandable, without the award being read. The suit, in such a case, is based on the agreement endorsed on the award, and the validity of the plaintiff's claim would in no way be dependent on the validity of the award. To a case of that kind, the prohibition enacted under Section 32 of the Act can have no application.

    11. Let us take a case where, by an arbitration agreement signed by A and B three persons, X, Y and Z are appointed arbitrators to decide certain disputes between them. Let us suppose that A and B write to X, Y and Z telling them that they might decide the disputes on the basis of the documents sent to them and that no further evidence need be taken and that no oral hearing is necessary. Let us suppose further that Z finds it inconvenient to act as arbitrator, and that X and T alone in good faith act as arbitrators (without the arbitration agreement being modified so as to constitute them the sole arbitrators) to the exclusion of Z, and that they pass an award and send copies of it to A and B. As an award, the decision is of no effect. But let us suppose that the decision given by X and Y gives complete satisfaction to A and B, and that they, knowing that the decision is void as an award make an endorsement on the 'award' that they would abide by it and act in accordance with its terms. The 'award' of its own force cannot give rise to any rights or obligations as between A and B. But the agreement endorsed on the award can. Section 32 does not, in my opinion, bar a suit to enforce the agreement endorsed on the ' award '. The prohibition enacted in Section 32 cannot be invoked except where the arbitration agreement or the award forms the basis of the relief claimed in the suit. The prohibition cannot, in particular, be invoked where, on the allegations made in the plaint, the plaintiff's right to relief is not to any extent dependent upon the validity of the alleged arbitration agreement or award.

    12. In support of the position that the appellant's suit was barred by Section 32, the learned District Judge relied on the ruling in Moolchand Jothajee v. Rashid Jamshed Sons and Co. (1946) 1 M.L.J. 185 : I.L.R. (1946) Mad. 480. The plaintiff's claim in that suit was based on the allegation that the award had become final, conclusive and binding on the parties. They asked for a decree in terms of the award. There can be no doubt, if I may say so with great respect, that a suit of that kind is barred by Section 32.

    13. Similarly in Bai Narbadabai v. Natvar Lal Chunilal I.L.R. (1953) Bom. 851 it was conceded that the suit was filed to enforce an award (see page 859) of the Report. On that statement of the plaintiff's case the learned Chief Justice held that the suit was clearly not a suit to enforce an agreement which was in any way independent of the award.

    14. In the case before us, the suit was not to enforce an award. It was to enforce an agreement whose terms had to be ascertained by reading a document which was called an award. The arbitration agreement, Exhibit A-1, purports to refer the disputes between the parties to the arbitration of thirteen persons including the writer, Doraisami. The arbitration agreement says that the parties would be bound by any decision which might be given by the arbitrators unanimously. The arbitrators, who have signed the decision, Exhibit A-1(a) are ten including the writer, Doraisami. The decision, therefore, was not an award capable of being filed under Section 14, or giving rise to rights or obligations as between the parties to the agreement. On that decision or ' award ' the parties made an endorsement that they with one mind accepted the decision. If the defendant signed that endorsement freely and voluntarily consenting to the terms of the document referred to as the 'decision' and knowing that it was not enforceable as an award, then, the suit to enforce that agreement would be maintainable. On the questions whether that endorsement was made by the defendant freely and voluntarily and with full knowledge of all the relevant facts, and whether the Court should exercise its discretion under the Specific Relief Act to enforce the agreement, no findings have been given by the learned District Judge.

    15. The judgment and decree of the District Judge are set aside. He will restore the appeal to its original number on his file and dispose of it afresh in the light of the observations made above. The Court-fee paid on the memorandum of Second Appeal will be refunded to the appellant. The respondent will pay the appellant the rest of his costs.

    Leave granted.

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    The Duraiswami Naidu v. Kishtappa Naidu
    (Sep 26, 1957)