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Naraindas v. Vallabhdas And Others
Factual and Procedural Background
Naraindas (appellant) is the brother of Vallabhdas and Durgaprasad (Respondents 1 and 2) and the son of Smt. Sukharni (Respondent 3). In 1932 an arbitration concerning partition of property and maintenance for Smt. Dulari Bahu culminated in an award that became a rule of court on 13 December 1933. That award granted Dulari Bahu Rs 12 per month (later increased by a 1949 decree to Rs 30) and created a charge on a house allotted to the appellant and his family.
The appellant and his brothers defaulted on maintenance payments, leading Dulari Bahu to execute the 1933 award; their Jabalpur houses were sold at court auction to Sitaram and Laxminarain (Respondents 4 and 5) for Rs 22,000. Disputes arose over possession and alleged deposits with Respondents 4 and 5. Consequently, by agreement dated 8 April 1955, the appellant’s family and Respondents 4 and 5 appointed four arbitrators to resolve: (i) financial liabilities between the parties, and (ii) future maintenance obligations to Dulari Bahu and Smt. Sukharni.
The arbitrators issued an award on 20 October 1956, assigning payment obligations and reaffirming a Rs 30 per mensem maintenance charge on property allotted to Durgaprasad. When the award was filed in court, the Additional District Judge set it aside, holding that Dulari Bahu was not a party to the arbitration agreement, that the reference did not amount to an adjustment, and that the award exceeded the scope of reference. On appeal, the Madhya Pradesh High Court reversed, dismissed the objections, and made the award a rule of court. The present appeal to the Supreme Court arose on a certificate of fitness granted by the High Court.
Legal Issues Presented
- Whether the arbitration reference and resultant award were invalid because Smt. Dulari Bahu, an interested party, did not join the arbitration agreement.
- Whether an out-of-court arbitration award can be made a rule of court when all parties to the arbitration agreement have not separately signified acceptance of the award.
- Whether prior litigation concerning the same property barred the parties from submitting a fresh dispute regarding that property to arbitration.
Arguments of the Parties
Appellant’s Arguments
- The award is void because Dulari Bahu, whose rights were affected, was not a signatory to the arbitration agreement.
- An out-of-court reference requires that all parties endorse acceptance of the award before it can be enforced by the court.
- Earlier litigation over the house prevented the property from being the subject of a later arbitration dispute.
The opinion does not contain a detailed account of the respondents’ legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Jugaldas Damodar Modi and Co. v. Pursottam Umadbhai and Co., AIR 1953 Cal 690 | An arbitration reference during the pendency of a suit requires the court’s order; without it, the award cannot be enforced. | Distinguished. The Supreme Court noted that the cited case related to arbitration during a pending suit, whereas no suit was pending in the present matter; hence the principle did not apply. |
Court's Reasoning and Analysis
1. Non-joinder of Dulari Bahu: The Court held that the dispute referred to arbitration concerned only the houses sold in court auction and the mutual liabilities of the appellant’s family and Respondents 4 and 5. Dulari Bahu’s interest was confined to recovering her maintenance, which the 1956 award preserved: her allowance remained Rs 30 per month, secured by a charge on immovable property, and the Rs 3,000 deposit mechanism was retained. She neither objected to the proceedings nor claimed prejudice, and she had since died. Accordingly, her absence did not vitiate the reference or award.
2. Need for parties’ post-award assent: The Court clarified that parties may always refer disputes to arbitration without court intervention. When no suit is pending, it is unnecessary for all parties to signify acceptance of the award before it can be enforced; agreement is essential only at the time of referring the dispute, not at the stage of the award. The proviso to Section 47 of the Arbitration Act, 1940—requiring unanimous consent to treat an award as a compromise—applies only when a suit is pending.
3. Effect of prior litigation: The Court rejected the argument that earlier litigation over the property barred arbitration. Arbitration may encompass a fresh dispute even if the property was the subject of past litigation; what matters is that the precise dispute now before the arbitrators had not been adjudicated earlier.
Holding and Implications
Appeal Dismissed with Costs.
The Supreme Court affirmed the High Court’s decision to make the 1956 award a rule of court. The ruling clarifies that (i) an interested party’s non-participation does not invalidate an award if her substantive rights remain unaffected, and (ii) post-award assent by all parties is unnecessary when the reference is made outside the pendency of a suit. The decision resolves the dispute between the parties but sets no new precedent beyond applying established principles of the Arbitration Act, 1940.
H.R Khanna, J.— This is an appeal on a certificate of fitness granted by the Madhya Pradesh High Court against the judgment of that Court whereby that Court in appeal set aside the order of the Additional District Judge, Jabalpur, dismissed the objections against an award and directed that the award be made a rule of the Court.
2. Naraindas, appellant is the brother of Vallabhdas and Durgaprasad, Respondents 1 and 2 and son of Smt Sukharni, Respondent 3. There were some arbitration proceedings in 1932 between the appellant and Respondents 1 to 3 on one side and Pannalal and Smt Dulari Bahu on the other side. Those proceedings related to partition of property and a claim for maintenance allowance by Dulari Bahu. An award was given in those proceedings and was made a rule of the court on December 13, 1933. According to the award, Dulari Bahu was to get a maintenance allowance of Rs 12 per mensem from the appellant and his brothers. A charge was created of the maintenance allowance on the house which fell as a result of a partition to the share of the appellant and Respondents 1 to 3. It was also provided that if the appellant and his brothers failed to pay the monthly allowance, Dulari Bahu would be entitled to get the house sold. Out of the sale proceeds, Rs 3000 were to be deposited in a bank on the condition that the amount of interest would be paid to Dulari Bahu but she would not be entitled to draw the principal amount. On Dulari Bahu's death, Rs 2000 out of Rs 3000 would be paid to the appellant and his brothers and Rs 1000 to Pannalal.
3. The amount of maintenance payable to Dulari Bahu was increased to Rs 30 per mensem in a suit brought by her and decided on October 8, 1949.
4. As the appellant and his brothers did not pay the maintenance allowance to Dulari Bahu, she, in execution of her claim for maintenance allowance, got their houses situated at Jabalpur sold by court auction. The houses were purchased for Rs 22,000 by Sitaram and Laxminarain, Respondents 4 and 5. After obtaining the sale certificate, Respondents 4 and 5 took proceedings for obtaining possession of the houses but they were resisted by Respondent 1. The appellant and his brothers further claimed that they had deposited some amount with Respondents 4 and 5. The appellant and his brothers and mother on one side and Respondents 4 and 5 on the other side thereupon appointed four arbitrators, as per agreement, dated April 8, 1955. According to the agreement, Respondents 4 and 5 would have no claim in the houses purchased by them in court auction and the arbitrators would make award in respect of the amounts to be paid by either of the parties as well as regarding the maintenance allowance payable to Durga Bahu and Sukharni Bahu. The arbitrators thereafter gave their award, dated October 20, 1956, wherein they made provision for the amounts payable to different parties. Regarding the amount of maintenance allowance payable to Dulari Bahu, the award provided that Rs 3000 out of the sale proceeds would be withdrawn from the court and be deposited with Durgaprasad, respondent. Durgaprasad was made liable to pay the amount of Rs 30 per mensem as maintenance allowance to Dulari Bahu. The award further provided that out of the amount of Rs 3000, Rs 1000 would be paid to Pannalal and Rs 2000 to Durgaprasad on the death of Dulari Bahu. Dulari Bahu was also given a right of residence in a room and maintenance allowance of Rs 30 payable to her was made a charge on the house allotted to Durgaprasad.
5. After the award had been put in court, objections were filed against the award. Learned Additional District Judge set aside the award on the ground that the award affected the rights of Dulari Bahu and she had not been made a party to the arbitration agreement. The reference to arbitration as well as the award, according to the Additional District Judge, did not amount to an adjustment and were, therefore, invalid. It was also held that the award was in excess of the arbitration agreement. Some other grounds were also given but we are not concerned with them. On appeal, the High Court reversed the decision of the Additional District Judge and held that there was no infirmity in the arbitration proceedings or the award. In the result, the award was made a rule of the court.
6. Mr Anand, on behalf of the appellant, has argued that Dulari Bahu was an interested party in the dispute relating to arbitration and as she did not join the arbitration agreement, the reference to arbitration and the subsequent award should be held to be invalid. There is, in our opinion, no force in this contention. The dispute which was referred to the arbitrators related to the houses in question which had been sold in court auction. The interest of Dulari Bahu pertained only to the recovery of her maintenance allowance. According to the earlier award which Dulari Bahu sought to enforce, she was to get the maintenance allowance from an amount of Rs 3000 which was to be kept in deposit. The rights of Dulari Bahu in this respect remained intact and were in no way affected by the award, dated October 20, 1956. The maintenance allowance payable to her was also kept as a charge over the immovable property. The fact that Dulari Bahu did not sign the arbitration agreement as such would not vitiate the arbitration proceedings. The present is not a case wherein the arbitration proceedings are sought to be assailed by Dulari Bahu. On the contrary, it is the admitted case of the parties that Dulari Bahu did not raise any objection to the arbitration proceedings or the subsequent award on the ground that her rights had been prejudicially affected. This apart, we find that Dulari Bahu, according to the learned counsel, died about three years ago. In the circumstances, it would be purely academic to dilate upon the question as to whether the rights of Dulari Bahu were prejudicially affected by the award in question.
7. It is next argued by Mr Anand that as the reference to arbitrators was made out of court and as all the parties to the arbitration agreement did not sign the award in token of their acceptance, the same could not be made a rule of the court. There is no substance, in our opinion, in the above contention. It is always open to parties to refer a dispute to arbitration without the intervention of the court. In case, a suit is pending in respect of the subject-matter of the dispute, there can be no valid reference during the pendency of the suit, to arbitration without the order of the court. The underlying reason for that is to avoid conflict of jurisdiction by both the court and the arbitrator dealing concurrently with the same dispute. An award given on a reference during the pendency of a suit relating to dispute which is the subject-matter of reference without obtaining the order of the court cannot be enforced. The only exception to this rule is provided by the proviso to Section 47 of the Arbitration Act (Act 10 of 1940) according to which “an arbitration award otherwise obtained may with the consent of all the parties interested be taken into consideration as a compromise or adjustment of a suit by any court before which the suit is pending”. In such an event, the award is enforced as a compromise or adjustment of the suit because all the interested parties give their consent to the award. Where, however, as in the present case, no suit is pending with respect to the subject-matter of dispute and the parties choose to refer a dispute to arbitrators, it is not essential that the parties should signify their consent to the award before the same can be enforced. Any other view would run counter to the entire scheme and object of arbitration for the settlement of disputes according to which, agreement and consent are imperative only at the stage of referring to dispute to arbitrators but not at the stage of the award. The decision of Bachawat, J. (as he then was) in Jugaldas Damodar Modi and Co. v. Pursottam Umadbhai and Co. AIR 1953 Cal 690 relied upon by the appellant has no bearing as the said case dealt with an arbitration reference during the pendency of a suit.
8. We are also not impressed by the contention raised on behalf of the appellant that because there had been earlier litigation about the house allotted to the appellant and his brothers, the same could not be the subject-matter of arbitration dispute. A dispute is referred to arbitration because the parties agreed to such a reference and the mere fact that the property which is the subject-matter of dispute was also the subject-matter of an earlier litigation, cannot prevent the parties to refer the dispute about that property to arbitration. What is referred to arbitrators in such a case is the fresh dispute and although the finding of the court in the previous litigation may have a bearing on the dispute referred to the arbitrators, it would not stand in the way of reference of the fresh dispute to the arbitrators. It is not the case of the appellant before us that the precise dispute which was the subject-matter of the award, dated October 20, 1956, had been adjudicated upon earlier in a civil court.
9. The appeal consequently fails and is dismissed with costs.
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