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Ichharam Damodardas v. Kantilai Nathubhai
Factual and Procedural Background
An arbitrator made an award ordering (1) payment of Rs. 8,000 and (2) that a charge be kept on immovable property worth more than Rs. 100. The learned Judge in the court below held that because the award purported to create a charge on immovable property of value exceeding Rs. 100, the award required registration under the Registration Act and therefore refused to accept the award for the purpose of passing a decree under Section 17 of the Arbitration Act, 1940. The arbitrator (who had filed the award) prayed for a decree in terms of the award; that prayer was rejected by the learned Judge. A revision application was filed challenging the learned Judge's refusal to pass a decree in terms of the award.
Legal Issues Presented
- Whether an arbitrator's award which, without intervention of the Court, purports to create a charge on immovable property worth more than Rs. 100 requires registration under Section 17(1)(b) of the Registration Act before it is filed under Section 14 of the Arbitration Act, 1940 and followed by judgment and decree under Section 17 of that Act.
- Whether an award, as such (prior to being converted into a court judgment and decree), can be said to "create, declare, assign, limit or extinguish" any right, title or interest in immovable property for the purposes of the Registration Act.
- Whether, if a part of an award (the creation of a charge) is defective for want of registration or is in excess of the arbitrator's powers, that part is separable and the remainder of the award (payment of money) can be maintained and reduced to a decree.
Arguments of the Parties
Applicant (party seeking revision)
- Contended that the learned Judge's view was erroneous in light of the decision in Seonarain Lal v. Prabhu Chand, AIR 1958 Pat 252 (FB), which the applicant relied on to argue that an award does not require registration even if it deals with immovable property above Rs. 100.
- Argued under the Arbitration Act that an award as such does not create, declare, assign, limit or extinguish any right, title or interest because it must be followed by a judgment and decree under Section 17 to be enforceable in a court.
- Also contended that earlier decisions such as ILR 26 Pat 437 (Dewaram v. Harinarain / AIR 1948 Pat 320) had been overruled by the 1958 Full Bench decision and therefore the lower court's requirement of registration was incorrect (as per applicant's submission).
Opponents (party resisting revision)
- Argued that there are Division Bench decisions of the Patna High Court (including ILR 26 Pat 437 and Jagadish Mahton v. Sundar Mahton, ILR 27 Pat 86 : AIR 1949 Pat 393) supporting registration and that those views should be preferred over the Full Bench decision.
- Contended that the Full Bench decision did not follow earlier Division Bench decisions, and that the earlier Division Bench views should be taken into account.
Learned Judge (below)
- Held that because the award purported to create a charge on immovable property worth more than Rs. 100, it required registration under the Registration Act and therefore refused to accept the award for the purpose of passing a decree under Section 17 of the Arbitration Act.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Seonarain Lal v. Prabhu Chand, AIR 1958 Pat 252 (FB) | Full Bench decision holding that an award by itself is of no effect and does not purport or operate to create any right, title or interest in property; concluded an award does not require registration. | The court considered this Full Bench decision but noted it did not refer to Section 3 of the Arbitration Act and Clause 7 of the First Schedule; the present court disagreed with the Full Bench conclusion and explained why the Full Bench treatment was incomplete as per the present analysis. |
| Dewaram v. Harinarain, ILR 26 Pat 437 (AIR 1948 Pat 320) | Held that no title to immovable property of value above Rs. 100 can pass by an award without the document being registered (award alone cannot transfer title). | The court relied on this decision as articulating a counter-argument to the Full Bench view and observed that the Full Bench had not answered the reasoning in Dewaram; it treated this authority as supporting the need for registration where an award effects transfer/creation of rights. |
| Jagadish Mahton v. Sundar Mahton, ILR 27 Pat 86 (AIR 1949 Pat 393) | Earlier Division Bench authority cited along with ILR 26 Pat 437 as representing a Division Bench view on registration issues. | Mentioned by opponents as part of the body of Division Bench decisions; the court noted these earlier Division Bench views existed but did not decide the conflict between two-judge and three-judge benches as it was unnecessary to resolve that point for the present determination. |
| Yanadamma v. Venkateswarlu, AIR 1947 Mad 168 | Explained that when parties refer a dispute to arbitration and accept the arbitrator's decision, that decision embodies the final terms of a contract; if the contract actually declares or creates an interest in immovable property, the award/contract must be registered; if it only relates to future conveyance, it may fall under the exception for agreements to convey in future. | The court cited and relied on this reasoning as supportive of the proposition that an award which actually creates or declares an interest in immovable property must be registered, depending on the nature of the award (present transfer vs. terms for future conveyance). |
| Amir Begam v. Badr-Ud-Din, ILR 35 All 336 (AIR 1914 PC 105) | Principle that when part of an award is invalid as being in excess of the arbitrator's powers and that part is separable from the remainder, the valid remainder can be maintained. | The court applied this principle to hold that the part of the award creating a charge (defective for want of registration and beyond the matters referred) was severable from the award's monetary component; accordingly, the monetary part could be maintained and decreed. |
Court's Reasoning and Analysis
The court proceeded in a stepwise legal analysis grounded on the text of the Arbitration Act and the Registration Act and the authorities cited.
- Legal effect of an award under the Arbitration Act: The court observed that although an award is not enforceable in a court of law unless it is filed and followed by judgment and decree under Section 17, an award is not thereby devoid of effect. It relied on Section 3 of the Arbitration Act (that arbitration agreements include the First Schedule provisions unless a different intention is expressed) and Clause 7 of the First Schedule which states that "the award shall be final and binding on the parties and persons claiming under them respectively." From these provisions the court concluded that an award is final and binding between the parties and persons claiming under them.
- Interaction with the Registration Act: The court examined the language of Section 17(1)(b) of the Registration Act which requires registration of certain non-testamentary instruments that "purport, or operate to create, declare, assign, limit or extinguish" any right, title or interest in immovable property of value Rs.100 and upwards. The central question was whether an award, by itself, falls within that description.
- Evaluation of Full Bench and Division Bench authorities: The court contrasted the Full Bench decision in Seonarain Lal (which held that an award by itself is of no effect and therefore not within the Registration Act provision) with earlier Division Bench authorities (notably Dewaram v. Harinarain and Jagadish Mahton) which had taken a different view. The court noted that the Full Bench had not referred to Section 3 of the Arbitration Act and Clause 7 of the First Schedule; had it done so, the Full Bench might have reached a different conclusion.
- Practical and doctrinal consequence: Because the award is final and binding between the parties and persons claiming under them, if an award provides that a charge is to be kept on immovable property worth Rs.100 or more, it effectively creates a binding obligation/incident affecting the property vis-à-vis those parties. The court held that such an award would require registration; otherwise, easy evasion of the Registration Act would be possible.
- Severability and correction: The court noted that the particular award before it comprised (a) a monetary award (Rs. 8,000) and (b) a charge on immovable property. The court found that the charge portion required registration and was therefore defective. It further observed that (i) Section 15 of the Arbitration Act allows a court to modify or correct an award where it is imperfect in form or contains obvious error without affecting the decision on the matter referred, and (ii) the arbitrator had exceeded his powers by creating a charge when the arbitration agreement only referred to the amount due and installments payable. Applying the separability principle from Amir Begam v. Badr-Ud-Din, the court held the defective charge portion was separable from the valid money award.
- Remedy fashioned: On the above analysis the court found it appropriate to allow the revision to the extent of directing the lower court to pass judgment and decree in terms of the award insofar as it related to payment of money, while treating the unregistered charge portion as defective and susceptible to correction/severance.
Holding and Implications
Holding: The revision is allowed. The court held that an award under the Arbitration Act of 1940 which creates a charge on immovable property worth Rs. 100 or more requires registration under the Registration Act; accordingly, the part of the subject award creating such a charge was defective for want of registration and was beyond the arbitrator's authority within the matters referred. The court directed the lower court to pass judgment and decree in terms of the award so far as it related to the payment of money (Rs. 8,000).
Implications:
- The direct effect is that the charge-on-property portion of the award is treated as defective (for want of registration and for being beyond the matters referred) and is severable; the monetary portion is valid and must be decreed by the court below.
- The court stated the legal position that awards which in operation create, declare or assign rights in immovable property valued at Rs. 100 or more fall within the Registration Act and require registration, otherwise that would allow evasion of registration requirements.
- The court applied Section 15 (modification/correction of awards) and the separability principle (as in Amir Begam) to preserve the enforceable part of the award. The person to whom the money is paid under the award was directed to pay the costs of the revision application.
- No statement in the opinion purports to formally overrule Full Bench or other precedents; the court explained its approach and distinguished existing authorities on the bases specified in the analysis.
This summary has been prepared strictly from the content of the provided opinion. No information beyond that text has been added or inferred.
1. This civil revision raises an important question as to whether the award of an arbitrator without the intervention of the Court creating a charge on immoveable property worth more than Rs. 100/- requires to be registered before it is filed under Section 14 of the Arbitration Act, 1940, which will hereinafter be referred to as the Act and followed by a judgment and decree as provided in section 17 of that act. The award was !or the payment of Rs. 8,000/- and it also provided that a charge should be kept on immoveable property worth more than Rs. 100/-. The learned Judge, therefore, held that the award required registration and refused to accept such an award for the purpose of passing a decree in terms of it. He, therefore, rejected the prayer of the arbitrator, who filed the award, to pass a decree in terms of it.
2. In revision, it is contended that this view is erroneous in view of the decision in Seonarain Lal v. Prabhu Chand, AIR 1958 Pat 252 (FB), which is a judgment of a Division Bench of Fatna High Court, consisting of three Judges. Under Section 17(1)(b) of the Registration Act, certain non testamentary instruments are required to be registered. The question lor determination, therefore, is whether an award is a nontestamentary instrument of the type mentioned in Section 17(1)(b) of the Registration Act, which reads as under :
"Other non-testamentary instruments which purport, or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, whether vested or contingent, of the value of one hundred rupees and upwards, to or in immoveab'le property."
It is contended that under the Indian Arbitration Act, 1940, an award as such does not create, declare, assign, limit or extinguish any right, title or interest, because the award has got to be followed by a judgment and decree as provided by Section 17, and unless it is followed by a judgment and decree It cannot be enforced in a Court of law. The proposition that the award as such cannot be enforced in a Court of law unless it is followed by a judgment and decree is provided in Section 17 of the Act, Section 32 of the Act provides as follows :
"Notwithstanding any law for the time being in force, no suit shall be on any ground whatsoever for a decision upon the existence, effect or validity of an arbitration agreement or award, nor shall any arbitration agreement or award be set aside, amended, modified or in any way affected otherwise than as provided in this Act."
The learned Judges of the Patna High Court held that the award by itself is of no effect and that therefore an award does not purport or operate to create any right, title or interest in the property dealt with by it and they therefore observed that an award even though it be in respect of immoveable property worth one hundered rupees and upwards does not require registration. They also observed that looked from another point of view, namely, that an award is only effective when a decree follows the judgment upon the award, such an award may be covered by the exception mentioned in Section 17(2)(vi) (any decree or order of a Couit) of the Registration Act. The exception mentioned in section 17(2)(vi) of the Registration Act is as follows :
"Any decree or order of a Court except a decree or order expressed to be made on a compromise and comprising immoveable property other than that which is the subject matter of the suit or proceeding".
But an award is not a decree or order of the Court although it may be followed by a decree or order of the Court and with respect, the exception contained in section 17(2)(vi) of the Registration Act, would not apply to an award under the Act
3. No doubt, as observed by the learned Judges of the Patna High Court an award under the Act has to be followed by a judgment and decree, and unless it is so followed, it cannot be enforced in a Court of law. But, that does not mean that the award by itself is of no effect. Section 3 of the Act provides as follows :
"An arbitration agreement, unless a different intention is expressed therein, shall be deemed to include the provisions set out in the First Schedule in so far as they are applicable to the reference".
Clause 7 of the First Schedule to the Arbitration Act provides that "the award shall be final and binding en the parties and persons claiming under them respectively."
In view of these two provisions an award becomes binding on the parties to the arbitration agreement and on the persons claiming under them, and if tho award provides that a charge is kept on the immoveable property worth more than Rs. 100/-, it becomes final and binding on the parties to the arbitration agreement and on the persons claiming under them. If the parties to the arbitration agreement accept the award and do not deem it necessary to go to a Court of law, they can enter into subsequent transactions relying on the charge created by the parties to the arbitration agreement. The subsequent riocumen' can be enforced in a Court of law, although the award on which it is based is not enforceable in the Court of law. In Dewaram v. Harinarain, ILR 26 Pat 437 at p. 441: (AIR 1948 Pat 320 at p. 321), it is observed as fallows:
"The matter may be looked at from another point view. Supposing the parties to an award are satisfied with it and enter info possession of the property respectively awarded to them and the value is over Rs. 100/- and no dispute arises between them, they are not bound to go to Court under the provisions of the Arbitration Act. They are satisfied with the award and they do not want any Court to pronounce a decree in accordance with the award. Has title to the property passed to the parties without the award being registered so that such a party can transfer the title to a third party by sale, gift or otherwise? In my opinion, the answer is clear that no title to immoveable property of the value of above Rs. 100/- can pass by the award -- it is a non-testamentary instrument -- without the document being registered."
Now, this decision has not been followed and has been differed from in AIR 1958 Pat 252 (FB), which is a judgment of a Division Bench of three Judges. But the argument advanced in ILR 26 Pat 437 : (AIR 1943 Pat 320) has not been answered in the subsequent Patna case of 1958. It is contended by the learned counsel for the applicant that the decision in ILR 26 Pat 437 : (AIR 1948 Pat 320) has been overruled by the Division Bench of the Patna High Court in AIR 1958 Pat 252 (FB). There is nothing in the judgment of the Full Bench (Division Court of three Judges) to snow that they had overruled the decision in ILR 26 Pat 437: (AIR 1948 Pat 320). No doubt they have differed from the view taken in ILR 26 Pat 437 : (AIR 1948 Pat 320). But the power to overrule such decisions tests only with the Supreme Court and none else. It is contended by the learned counsel for the opponents that there are two judgments of Division Courts of the Patna High Court in ILR 26 Pat 437 : (AIR 1948 320) and Jagadish Mahton v. Sundar Mahton, ILR 27 Pat 86 : (AIR 1949 Pat 393), and that although these two judgments have not been followed by the Division Bench of three Judges of the same High Court, this is a case In which the view of the Division Bench of two Judges should be taken as against the view taken by three Judges of the Full Bench. But it is not necessary to go into this question. The Division Bench of three Judges in AIR 1958 Pat 252 (FB), has not referred to the provisions of Section 3 of the Act and Clause 7 of the First Schedule to the Act. If they had done so, perhaps they might have come to a different conclusion. Although the provisions of Section 3 of the Act and Clause 7 in Schedule I of the Act have not been referred to in Yanadamma v. Venkateswarlu, AIR 1947 Mad 168 at p. 170 they have observed as follows ;
"When there is a dispute between parties and that dispute is referred to an arbitrator whose decision the parties agree to accept, there is, in fact, a contract between these parties, the final terms of which will embody the decision of the arbitrator on the point referred to him. If the nature of the contract between the parties is such that it actually declares or creates cr assigns any Interest in immoveable property, the award just tike any other contract having the effect, must be registered. If, however, the contract between the parties merely relates to the terms on which one party shall have the right to demand from the other party a future conveyance of property, then the award which settles the terms upon which this future conveyance should be made, is nothing more than part of an agreement to convey, and it is well settled that an agreement to convey in future falls under the exertion in Section 17 Registration Act."
4. Even in the case of an ordinary sale deed of immoveable property, it cannot be enforced without filing a suit, but that does not mean that the sale deed has no effect by itself. Similarly, an award under the Act is not enforceable unless it is filed in a Court and followed by a judgment and decree of the Court. But, that does not mean that the award itself has no effect. It is final and binding between the parties to the arbitration agreement, and it has, therefore, great effect to that extent. I, therefore, hold that under the Arbitration Act of 1940, if an award creates a charge on immoveable property worth Rs. 100A or more, it would require registration. To take any other view would result in making easy evasion of the provisions of the Registration Act.
5. But in this case the award provided for two things : (1) the payment of Rs. 8000/- and (2) the creation of charge on immoveable property. So far as the award created a charge on the immoveable property, it requires registration and to that extent the award is defective. But so far as the award related to the payment of Rs. 8000/- there was no detect in the award. Section 15 of the Act provides that the Court may by order modify or correct an award, where the award is imperfect in form or contains any obvious error which can be amended without affecting the decision on the matter referred. In my opinion, the non-registration of that part of the award which relates to a charge on the immoveable property would be a defect in form which could be modified and corrected by the Court. For another reason also, the Court can modify the award, because the arbitration agreement referred only the question in respect of the amount due and the installments payable to arbitration. But the arbitrator created a charge which was not one of the matters referred to in the arbitration agreement. To that extent, the award was in excess of the powers of the arbitrator;, and as decided by the Privy Council in Amir Begam v. Badr-Ud-Din, ILR 3S All 336 : (AIR 1914 PC 105). where part of an award was found to be invalid as being in excess of the arbitrator's powers and it was separable from the rest, the remainder of the award being good, could be maintained. In this case, the award relating to the payment of Rs. 8000/- is separable from that part of the award which creates a charge on the immovable property. The award which is binding on parties to the arbitration agreement does not cease to have that effect merely because in law an award cannot be enforced unless followed by a judgment and decree.
6. I, therefore, allow the revision application and direct the Court below to pass a judgment and decree in, terms of the award so far as it relates to the payment of money. The person to whom the money is paid under the award should pay the costs of this revision application.
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