Citation Codes

Equivalent Citations

citation codes

Case Number

C.M.A Nos. 244 and 246 of 1957

Advocates

For the Appellant: T.K. Lakshmana Iyer, T.L. Viswanatha Iyer, N.K. Venkatachalam, C.M. Kuruvilla, Advocates.
For the Respondent: K.V. Surianarayana Iyer, Advocate General, S. Nataraja Iyer, C.M. Devan, Advocates.

Judges

K.T Koshi, C.J
N. Varadaraja Iyengar, J.

Acts

section 29 of the Indian Arbitration Act, 1940
rule 8 of Schedule I to the Act
section 34 C.P.C

See more information ...

Smart Summary

Judgment Summary — N.V. Iyengar, J. (Appeals from Subordinate Judge, Kozhikode)

Factual and Procedural Background

Two connected suits (O.S. Nos. 50 and 53 of 1954) originally instituted in the Subordinate Judge's Court at Kozhikode were jointly tried because they arose from the same transaction and involved a common defendant, C.C. Vulson. O.S. 50/1954 was brought by K. Kelukutty — a firm — and K. Kelukutty (a partner), claiming recovery of Rs. 6,300 under a promissory note dated 27-5-1951 executed by the defendant in favour of the second plaintiff. O.S. 53/1954 concerned an identical promissory note of the same date and amount executed in favour of U.K. Sankunny and similarly involved the firm U.K. Sankunny and the partner U.K. Sankunny.

The plaintiffs alleged that the consideration for each promissory note moved from the respective firm (first plaintiff), though the partner (second plaintiff) actually paid. Decrees were sought in favour of the firms and alternatively in favour of the individual partners.

The disputes in both suits were referred to a sole arbitrator, Mr. P.S. Bharatha Iyer, who submitted an award on 10-9-1956. The defendant objected to the award on various grounds before the trial court; the trial court rejected the objections. The present appeals are by the common defendant against those orders refusing to set aside the award.

Legal Issues Presented

Whether the arbitrator could grant future interest (interest after the date of suit) in his award in view of section 29 of the Indian Arbitration Act, 1940.
Whether the arbitrator had power to award costs of the suit (as distinct from costs of the reference and award) under rule 8 of Schedule I to the Arbitration Act.
Whether the arbitrator had power to decide the question of law — specifically the maintainability of the suits as framed — or whether such a question ought to have been referred to the court.
Whether the reference was valid given that there was one reference for two suits and the cause title in the reference named only the individual plaintiffs.

Arguments of the Parties

Defendant's Arguments

The award's grant of future interest was impermissible under section 29 of the Indian Arbitration Act, 1940 (so that interest after suit could not be awarded by the arbitrator).
The defendant denied liability to pay anything towards the costs of the suit and contended that the arbitrator had no authority to award the costs of the suit (as opposed to costs of the reference and award).
The arbitrator lacked power to decide the legal question of maintainability — namely that, on the face of the plaints, neither plaintiff was entitled to sue (the firm was not named on the instrument; the partner claimed to have acted for the firm).
The reference was invalid because there was a single reference though two suits existed, and the cause title in the reference mentioned only the individual plaintiffs.

Plaintiffs' Position (as reflected in the opinion)

The plaints sought future interest from the date of suit and the arbitrator awarded interest accordingly.
The plaintiffs pleaded that the consideration for the promissory notes moved from the respective firms (first plaintiffs), although the second plaintiffs actually paid; they sought decrees in favour of the firms alternatively in favour of the individuals.
The plaintiffs proceeded with the arbitration (each plaintiffs' side represented by separate advocates) and submitted to the arbitrator's process; the award was tendered and executed before the court.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Seth Thawardas Pherumal v. Union of India, A.I.R. 1955 S.C. 468	Principle that if no specific question of law is referred to an arbitrator, the arbitrator's decision on that question, even if essential and decided incidentally, is not final.	The Court cited the decision to explain the limits of finality of an arbitrator's incidental decision on law but held that whether the question was one of law or fact it formed part of the matter in dispute and was therefore within the arbitrator's jurisdiction; if a mistake of law appeared on the face of the award, the court could correct it.
Brojo Lal Sahe v. Dudh Nath, A.I.R. 1928 Cal. 148	Authority for the proposition that a suit by a firm on a promissory note in favour of one of the partners is maintainable.	Used to support the view that there was nothing fatally defective in the framing of the plaints and that such suits are sustainable.
Venkitachalam v. Suryanarayanamurty, A.I.R. 1941 M. 129	Principle that a court will be reluctant to assist a party who, with full knowledge, allows an arbitrator to proceed and take part in the proceedings but later seeks to evade the reference by raising objections that were not previously pressed.	Applied to reject the defendant's challenge to the validity of the reference where the parties had appeared before the arbitrator and conducted their case; court affirmed unwillingness to entertain belated objections after participation.

Court's Reasoning and Analysis

The court considered the objections in the sequence presented before it and analysed the relevant statutory provisions and practice:

1. Interest awarded by the arbitrator

The plaintiffs' plaints had prayed for future interest from the date of suit, and the arbitrator granted interest accordingly. The trial court had interpreted section 29 of the Indian Arbitration Act, 1940 as preventing only the grant of interest from the date of the award and thus had disallowed interest from the date of the award but had allowed interest from the date of the plaint up to the date of the award. On appeal the court held that the defendant's argument was tenable: an arbitrator is not a court and does not have the special power conferred on courts by section 34 of the Civil Procedure Code to grant interest after suit. In the absence of such provision, even a court would not have power to give future interest in the manner contended for. Consequently the arbitrator lacked power to award future interest as claimed.

2. Costs awarded by the arbitrator

The arbitrator had allowed costs in favour of the plaintiffs and fixed his fee (Rs. 1,500) apportioned between the parties. The defendant challenged liability to pay any part of the costs of the suit. The court examined rule 8 of Schedule I to the Arbitration Act (relating to costs of the reference and award), noting the distinction between costs of the cause, costs of reference, and costs of award. The court accepted that rule 8 empowers arbitrators to direct the costs of the reference and award (including taxation and the manner of payment), but that this rule does not necessarily extend to costs incurred before the reference. However, even if the arbitrator lacked power to deal with costs incurred up to the reference, the court observed that the trial court retained jurisdiction to make appropriate provisions in the decree giving effect to the award. On this basis the court found no substance in the contention that the arbitrator had no power to award costs at all.

3. Arbitrator's power to decide questions of law (maintainability)

The defendant contended that on the face of the plaints neither plaintiff was entitled to sue and that this raised a question of law which the arbitrator could not decide. The arbitrator treated the plaintiffs' alternative prayers as rendering that objection insignificant and ultimately passed decrees for the individual plaintiffs. The trial court treated the question as one of fact, not law, or at most as a question incidentally arising which the arbitrator could decide.

The appellate court reasoned that whether the matter was a question of law or fact, it was contained in the matters in difference between the parties referred to the arbitrator, and hence within his jurisdiction to decide. The court observed that if there were a palpable mistake of law on the face of the award, the court could intervene to correct it, subject to the qualification that if a question of law had been specifically referred to the arbitrator, his decision thereon would be final in that context. The court cited Seth Thawardas (A.I.R. 1955 S.C. 468) to explain limitations of finality but concluded that no fatal flaw existed in the framing of the suits; it relied on Brojo Lal Sahe to confirm the sustainability of such suits.

4. Validity of the reference

The defendant objected that there was only one reference for two suits and that the cause title in that reference named only the individual plaintiffs. The trial court noted that there were two petitions for reference in the respective suits properly signed and that the body of the reference specified both suits. The appellate court accepted this explanation as sufficient. Moreover, the court emphasised that the parties had understood the position, appeared before the arbitrator pursuant to his notice, and conducted their cases. Relying on the principle in Venkitachalam v. Suryanarayanamurty, the court stressed that it would be reluctant to permit a party who participated fully to challenge the validity of the reference belatedly.

Holding and Implications

Core Ruling: Appeals dismissed with costs.

Immediate consequences for the parties:

The court held that the arbitrator did not have power to grant future interest in the manner claimed; the defendant's objection on the question of interest was found tenable (the court indicated that the arbitrator is not vested with the special power under section 34 C.P.C. to grant interest after suit).
On costs, the court held that the arbitrator had power under rule 8 of Schedule I to award the costs of the reference and award; distinctions between costs of the cause (including costs prior to reference), costs of reference and costs of award were recognised, and the trial court retained jurisdiction to make appropriate provision in the decree in respect of costs incurred up to the reference.
The appellant's challenge that the arbitrator lacked jurisdiction to decide the maintainability question failed; the court treated that question as part of the matters in difference and within the arbitrator's competence (subject to the court's supervisory power if a clear mistake of law appears on the face of the award).
The objection to the validity of the reference (single reference for two suits and cause title) was rejected on the facts because two separate petitions for reference existed and the parties had participated before the arbitrator.

Broader implications: The opinion does not purport to lay down any novel principle of law beyond applying established distinctions between costs of a cause and costs of reference/award, clarifying the limits of an arbitrator's power to grant future interest, and reiterating established principles regarding parties' acquiescence in arbitration and the limited finality of an arbitrator's incidental decisions on questions of law.

Final directions: The appeals are dismissed with costs; counsel's fee of one set is awarded in each case.

Show full summary ...

Vulson v. Kelukutty And Another

N.V Iyengar, J.:— These two appeals are by the common defendant in two connected suit, O.S Nos. 50 and 53 of 1954 on the file of the Subordinate Judge of Kozhikode and are directed against two similar orders passed by the court below, refusing his motion to set aside the award made in favour of the plaintiffs, by the sole arbitrator in the case.

2. O.S 50 of 1954 was instituted by two plaintiffs, viz. (1) K. Kelukutty — a partnership firm and (ii) K. Kelukutty one of the partners of the 1st plaintiff-firm. The plaintiffs in O.S 53 of 1954 were similarly the firm of U.K Sankunny and U.K Sankunny a partner thereof. O.S 50 of 1954 was for recovery of Rs. 6300 with interest and costs from the sole defendant C.C Vulson, on the basis of a pro-note dated 27-5-1951 executed by the latter, in favour of the 2nd plaintiff, K. Kelukutty. O.S 53 of 1954 was based on a pro-note, of same date and same amount and executed by the same defendant but in favour of Sankunny the 2nd plaintiff in that suit. In both suits, the plaintiffs averred that the consideration for the pro-notes concerned, moved from the respective 1st plaintiff-firms, though the 2nd plaintiff in each actually paid the same. Decrees were accordingly prayed for in both the suits, in favour of the respective 1st plaintiff-firms and only alternatively in favour of the 2nd plaintiffs.

3. In view to the single origin of the transaction in the two suits and same contention raised by the common defendant, the two suits were being jointly tried together. While so, the disputes in both were referred to Mr. P.S Bharatha Iyer, sole arbitrator of the parties choice. The plaintiffs in the two cases were represented by two separate advocates before the arbitrators, who finally submitted his award to court, on 10-9-1956. The 1st defendant thereupon filed the objection herein, questioning validity of the award on various grounds. It is the order rejecting these objections that forms the subject-matter of the appeals and we are concerned with some only of the grounds so raised and disallowed. We will deal with these grounds in the order in which they were raised before us.

4. Firstly, in regard to the interest provision in the award: The plaint in both the suits prayed for grant of future interest from date of suit and the arbitrator had, conformably, granted the same. The award does not mention that any question was raised in this connection. The defendant, in his objection raised however, the point that section 29 of the Indian Arbitration Act, 1940 forbade the grant of future interest at all, after suit. Section 29 runs as follows:

“Where and in so far as an award is for the payment of money, the court may in the decree order interest, from the date of the decree at such rate as the Court deems reasonable, to be paid on the principal sum as adjudged by the award and confirmed by the decree.”

5. The Court below, dealing with the matter, thought that the section prevented only the grant of interest from the date of the award, and so it disallowed the same, while confirming the order of the arbitrator to the extent of the future interest from date of plaint up to the date of the award. The contention is raised before us that the court below should have struck down even this portion and learned counsel referred to Seth Thawardas Pherumal v. Union Of India, A.I.R 1955 S.C 468. We think this argument is entitled to succeed. For the arbitrator is not a court which has been given special power to give interest after suit under section 34 C.P.C In the absence of that section, even a court would not have power to give future interest.

6. Next as regards the costs of the suit. In regard to this matter, the arbitrator allowed costs in both the suits in favour of the respective plaintiffs and fixed for himself a fee of Rs. 1,500 payable in equal thirds by the respective 2nd plaintiffs in the two suits and the common defendant. The defendant did not dispute the fees of Rs. 500 ordered as against himself in favour of the arbitrator. But he questioned his liability to pay anything towards the costs of the suit. The court below accepting this contention to certain extent, directed that the costs incurred by the parties under the award shall not be made part of the costs of the suit. The plaintiffs in the respective suits were accordingly allowed only the schedule fees as Vakil's fee, along with the rest of their costs of the suit. Before us the contention is raised that there is no authority for the arbitrator to grant costs of the suit at all. Now rule 8 of Schedule I to the Act (which deals with the implied conditions of Arbitration Agreements) which is the relevant provisions says:

“The costs of the reference and award shall be in the discretion of the arbitrators or umpire who may direct to, and by whom, and in what manner, such costs or any part thereof shall be paid, and may tax or settle the amount of costs to be paid or any part thereof and may award costs to be paid as between legal practitioner and client.”

7. The argument is that costs are confined by virtue of this rule, to the costs of the reference and award alone, so as not to include the costs of the suit anterior to the submission. There is a distinction no doubt, between costs of the cause, costs of reference and costs of award. So when a cause is referred the costs of the cause comprise the costs incurred in the cause up to the time of the submission, the costs of the order of reference and the costs of ulterior proceedings in the cause, if any, after the award. And there is also the Rule that when “all matters in difference between the parties” including the question of costs are referred as here to an arbitrator, he has the power to deal with all the costs of the cause. See Basu's Indian Arbitration Act, 2nd Edn p. 763. Even assuming that the Arbitrator has, as contended for, no power to deal with the costs incurred up to the Reference, the court below had still jurisdiction, in our opinion, to make appropriate provision in this regard in the decree giving effect to the award. There is therefore no substance in this contention.

8. Next, in respect to the lack of power in the arbitrator to decide for himself the question of law involved in the case, viz., as to whether the suits were maintainable as framed. For on the plaint allegations themselves, according to the defendant neither of the plaintiffs were entitled to sue. The 1st plaintiffs — firm who were the alleged beneficiaries could not, because their name did not appear on the face of the instrument and the respective 2nd plaintiffs were precluded, because they claimed to have acted for the 1st plaintiffs. According to the arbitrator, the prayer in the plaints that decree may be passed in favour of one or other of the plaintiffs, rendered the question raised by the defendant as no significance, though ultimately he passed a decree in favour of the 2nd plaintiff in both the suits. The court below in dealing with this aspect, held that there was really no question of law before the arbitrator. It was only the question of fact as to whether both the plaintiffs or any of them were entitled to sue on the pro-notes. But even assuming for the purpose of argument that there was a question of law involved, the court below was willing to hold that question only incidentally arose and the arbitrator was not under the circumstances, bound to refer it to the court for decision. It seems to us that the question is of no substance in this case, for whether it is a question of law or fact it was comprised in the matter in dispute between the parties, and the arbitrator was accordingly clothed with power to decide it. It may be that if there was a mistake of law on the face of the award arising from the decision on this question, the court might have opportunity to interfere and correct it, unless of course the question of law is held to have been specifically referred, as a point of difference for decision of the arbitrator as such. See Seth Thawardas Pherumal v. Union Of India, A.I.R 1955 S.C 468 already cited where it was held:

“If no specific question of law is referred, either by agreement or by compulsion, the decision of the arbitrator on that is not final however much it may be within his jurisdiction and indeed essential, for him to decide the question incidentally.”

9. And it was not suggested before us either, by learned counsel that there was anything fatal in the frame of the suit. Indeed the principle is otherwise well settled that a suit by a firm on a pro-note in favour of one of the partners is perfectly sustainable. See Brojo Lal Sahe v. Dudh Nath, A.I.R 1928 Cal. 148.

10. Finally as regards the validity of the reference: The point was that there was only one reference though there were two suits and even that reference contained a cause title mentioning only the names of the individuals Kelukutty and Sankunny, as parties plaintiffs in the reference. The court below got over the difficulty by saying that there were two petitions for reference in the respective suits properly signed by the parties therein and further the body of the reference specified both suits as having been referred. We think the answer of the court below was sufficient to meet the question raised. In any event, the parties understood the matter correctly when they appeared before the arbitrator in pursuance of his notice and conducted their case before him. Learned counsel is correct in saying that it is open to a party to canvass the validity of a reference in proceedings under section 30 of the Act as here, but a court would be unwilling to assist any party who with full knowledge of the circumstances, allows an arbitrator to proceed and takes part in it and seeks to evade it by raising a number of objections which never occurred to him before. See Venkitachalam v. Suryanarayanamurty, A.I.R 1941 M. 129.

11. No other point was taken before us. The appeals fail in the result and is dismissed with costs. Counsel's fee one set in each case.

Vulson v. Kelukutty And Another

Judgment Summary — N.V. Iyengar, J. (Appeals from Subordinate Judge, Kozhikode)

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Defendant's Arguments

Plaintiffs' Position (as reflected in the opinion)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Vulson v. Kelukutty And Another

Comments