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Kanhaiya Lal Chaube v. Jangi
Structured Summary of the Provided Legal Opinion
Factual and Procedural Background
The parties are the Chaubes (resident at Muttra) and another branch of the family represented by Munni Lal and Krishna. By a registered award of arbitration dated 4 May 1910 the arbitrators partitioned the joint property; they allotted certain houses and shops to the plaintiff and others to the defendant. Because the lots awarded were unequal in value, the arbitrators directed the defendant to pay Rs. 1,400 to the plaintiff as compensation, specified that interest would run if the sum was not paid, and declared that the payment should be treated as a charge on a particular shop allotted to the defendant (a shop at Sant Ghat occupied by a tenant named Jamna Das).
The defendant failed to pay the directed sum. The plaintiff thereupon filed suit for recovery of the amount, seeking, if necessary, sale of the charged shop. The courts below decreed the plaintiff's claim. The appeal before the court raised the principal question whether the arbitrators were competent to declare a charge by the award on the shop; the timeliness of the claim depended on that competence (if competent, claim within time; if not, barred by limitation).
Legal Issues Presented
- Whether the arbitrators were competent, under the agreement of reference and applicable law, to create or declare a charge by their award on the shop allotted to the defendant.
- Whether the award should be construed as creating a hypothecation (transfer of an interest requiring formalities) or merely as creating a charge (a security which does not transfer an interest in the property).
- Whether, having accepted and acted upon the award, the parties (in particular the defendant) could thereafter challenge the validity of the charge.
Arguments of the Parties
Appellant's Arguments
- The arbitrator had no power to make the provision that hypothecated the shop (if the word "makphul" is construed to mean "hypothecated"), because until partition the defendant had no separate title in the shop and therefore could not hypothecate it; an arbitrator cannot hypothecate property that only becomes separately owned by virtue of the partition.
- Even if "makphul" is read as "charged", the appellant contended that the arbitrator lacked the competence to create such a proprietary security in the manner alleged. (This contention was advanced in the appeal as a challenge to the arbitrator's jurisdiction to create the security.)
Respondent's (Plaintiff's) Position, as reflected in the opinion
- The award was a partition award that included provision for equalization by payment and for securing that payment by treating the shop as charged; the parties accepted the award and acted upon it.
- Because the award was accepted and acted upon, it is final between the parties and they cannot go behind it; the charge created by the award is valid and enforceable.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Manickam Pillai v. Audinarayana Pillai (1910) 34 Mad 47 | Held that where partition provisions impose payment obligations with directions for recovery from property, a charge can be created on those properties and is enforceable. | Used as authority that a charge legitimately created in the course of partition is capable of enforcement; supports the proposition that arbitrators can create such a charge when making a partition. |
| Govinda Chandra Pal v. Dwarka Nath Pal (1908) 35 Cal 837 | A compromise declaring specified immovable properties to be hypothecated for realization of money was construed as an intention to create a charge enforceable without registration. | Applied to show that parties' arrangements fixing security on property as part of settlement/partition can operate as an enforceable charge even if not registered. |
| Sham Lal v. Banna Lal (1882) 4 All 296 | Principle that maintenance of a Hindu widow is not a charge on estate until fixed by decree or agreement; a court of equity can create such a charge to secure maintenance. | Invoked by analogy to illustrate that a court (or similar adjudicatory authority) can, in equity, create a charge to secure rights; used to analogise the arbitrator's equitable power in partition matters. |
| Ram Kunwar v. Ram Dei (1900) 22 All 326 | Same principle as in Sham Lal: maintenance not a charge until fixed; court may create such charge in equity. | Used together with Sham Lal to support the analogy that an adjudicatory authority can impose a charge as an equitable device to secure rights. |
| Mahomed Musa v. Aghore Kumar Ganguli AIR 1914 PC 27 | Equity will support a transaction that has been acted upon even though it lacks perfect legal form; when parties act upon an agreement, the locus penitential is excluded. | Applied to support the conclusion that because the parties accepted and acted upon the award, equity will uphold the imperfectly clothed transaction (the award hence cannot be impeached on formality grounds). |
Court's Reasoning and Analysis
The court proceeded in two complementary strands of reasoning (as reflected in separate opinions that concurred in the result).
General principles governing arbitrators' powers:
- Arbitrators act pursuant to the authority delegated to them by the agreement of reference; they cannot go beyond that agreement but, within its ambit, may exercise powers the parties themselves could have exercised (subject to any formalities required for those acts).
- The agreement of reference in this case (executed 30 November 1908) empowered the arbitrators to decide the matters in difference "in such manner as they thought proper" and declared the award final and binding on the parties; among the matters referred was the division of houses and shops.
On creation of a charge in partition:
- Section 100 of the Transfer of Property Act defines "charge" and shows that a charge may be created by act of parties or operation of law. The court observed that parties could create a charge to secure compensation when effecting a partition by mutual arrangement.
- Because arbitrators were deputed to make a partition "in such manner as they thought proper," they had the power to do what the parties themselves could have done to effect the partition, including providing for compensation and securing its payment by a charge on property allotted to a party.
- The court emphasized that no formalities are required for the creation of a charge in the circumstances described, relying on analogous authorities where courts or parties in settlements created charges enforceable without registration.
Application to the facts:
- The arbitrators' award expressly directed payment of Rs. 1,400 within a month, stipulated interest if unpaid, and provided that the payment should be a charge on a specified shop occupied by a tenant. The award was signed by the parties and was acted upon.
- One judge (Ashworth, J.) found that the charge was validly created, was within the arbitrators' competence, did not transfer any proprietary interest in the mortgaged property, and was enforceable; after acceptance and action on the award, parties could not go behind it.
- The other judge accepted that the arbitrator could not, in effect, hypothecate (i.e., transfer an interest in) the shop before partition because that would require a separate title and compliance with formalities. However, he held that the arbitrator could lawfully direct that the property be charged for the debt (i.e., create a security charge or a personal covenant preventing transfer prejudicial to realization of the debt).
- That judge relied on a comparison with the powers of a Commissioner under Order 26, Rule 13, Civil P.C., and on the distinction between a personal covenant (which does not create an interest and cannot bind transferees without notice) and a hypothecation which would create or transfer an interest requiring statutory formalities. He also noted Section 40 of the Transfer of Property Act as a mechanism by which certain obligations may be binding on transferees with notice, but stressed that such provisions do not transform a charge into a transferred proprietary interest.
- On construction, given the presumption that a person acts within legal powers and the wording of the award, the judge construed the award as creating only a charge and not a hypothecation.
Final synthesis of reasoning: The court combined the view that arbitrators can effectuate equitable and practical arrangements necessary to complete a partition (including providing for compensation and securing it by a charge) with the textual and legal distinction between a charge and a hypothecation (the latter being beyond the arbitrator's power absent title and formalities). Because the parties accepted and acted on the award and because the award should be construed as creating a charge rather than a hypothecation, the award was enforceable.
Holding and Implications
Holding: The appeal is DISMISSED. The court held that the charge was validly created by the award and that the arbitrators were competent to create it; consequently the plaintiff's decree for recovery (including sale of the charged shop if necessary) was affirmed. Costs were awarded against the appellant.
Implications:
- Direct effect on the parties: the plaintiff's decree for recovery of Rs. 1,400 (with interest as provided in the award) is upheld and the charge declared by the award on the defendant's allotted shop is enforceable; the appellant cannot now repudiate the charge after having accepted and acted upon the award.
- The court distinguished between creating a charge (which an arbitrator can do as part of effectuating a partition) and creating a hypothecation or transferring an interest (which would require the defendant to have had a separate title and compliance with statutory formalities). The award was construed as a charge, not a hypothecation.
- The opinion relies on existing principles and precedents to uphold the award; it does not purport to create a new legal precedent beyond applying existing authorities and equitable principles to the facts of this case.
This summary is confined strictly to the information and reasoning contained in the provided opinion and does not add or infer facts or legal conclusions beyond those expressly stated in the opinion.
1. The parties are Chaubes, residing at Muttra By virtue of a registered award of arbitration, dated the 4th May 1910, the arbitrators made a partition of the joint property held by them and another branch of the family represented by Munni Lal and Krishna; and in order to equalize the lots of certain house properties to the present suit inter se, they directed that the defendant shall pay Rs. 1,400 as compensation to the plaintiff and that such payment shall be treated as a charge on a shop specified in the award, which was allotted to the defendant.
2. The defendant did not pay the money he was directed to pay by the award, and the present suit was consequently filed by the plaintiff for the recovery of the same by the sale of the property charged. The Courts below have decreed the claim, and the question for determination in this appeal is whether the arbitrators were competent to declare a charge by the award on the shop allotted to the defendant. If they were competent to create a charge, the claim was admittedly within time. If they were not so competent, the claim was obviously barred by limitation.
3. Where certain contending parties agree to refer their disputes to arbitration, the arbitrators exercise the authority which has been delegated to them by the agreement of reference. They cannot go outside the agreement of reference, but within the ambit of the reference itself they can exercise all the powers for the purpose of settling the matters in difference between the parties, which the parties could have, subject to usual formalities exercised themselves, if they had chosen to come to an amicable settlement by mutual agreement. No formalities are, however, required in the case of a charge.
4. The agreement of reference was executed on the 30th November 1908 and provided that the arbitrators shall decide the matters in difference between them, which were detailed therein, in such manner as they thought proper, and that the parties to the reference shall accept and be bound by any decision at which they might arrive on the matters in dispute. It further stated that they shall have no objection of any kind to the decision so arrived at, and that the award of the arbitrators shall be regarded as final.
5. Among the matters then in dispute between the parties to the reference was the division of the houses and shops belonging to the parties. The arbitrators awarded a house and some shops to the present plaintiff and another house and other shops to the present defendant, and as they were of unequal value, they directed, among other things, that the lots shall be equalized by the defendant paying Rs. 1,400 to the plaintiff as compensation for the deficiency in the value of the property allotted to him within a month, and that if no such payment was made, the latter shall be entitled to claim interest thereon at the rate of ten annas per cent, per mensem, and that the payment of the said amount shall be a charge on the shop allotted to the defendant, which was situated at the Sant Ghat, and which was occupied by a tenant named Jamna Das.
6. A charge can be created either by an act of parties or by an operation of law. Section 100 of the Transfer of Property Act provides that where immovable property of one person is, by act of parties or operation of law, made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property. It was open to the parties to create a charge for the payment of the compensation money if they made a partition by mutual arrangement, and if they could have done so by common consent or by their own act in order to complete the partition, the arbitrators, who were deputed by them to make a partition of their property in such manner as they thought proper, had the power to do in conformity with the reference what the parties could themselves have done to effect that purpose.
7. The arbitrators exercised the authority that was delegated to them, and that authority included the doing of anything that was necessary for making the partition effective and complete. The payment of compensation by one party to another is very often an indispensable incident accompanying a partition, whenever an unequal partition has to be made for some reason or other, and an authority to award compensation and to provide a method for its payment, or to fix a fund or property from which in case of non-payment it is to be recovered cannot be regarded as extraneous to or outside the scope of the reference. In Manickam Pillai v. Audinarayana Pillai (1910) 34 Mad 47, where two brothers made a partition of their family properties and provided for the payment of a certain debt by one of them, with a direction that if such payment was not made the party in default shall pay to the other party who has sustained loss twice the amount from his property, it was held that a charge was created on those properties, which was capable of being enforced. In Govinda Chandra Pal v. Dwarka Nath Pal (1908) 35 Cal 837, where in a suit for the recovery of money due on bahikhata accounts, a compromise was come to and a petition was filed requiring the defendants to pay a certain sum of money together with interest by instalments to the plaintiff, and further declaring that the immovable properties specified therein shall be deemed to be hypothecated for the realization of the said money, it was held that the parties only intended to create a charge and that the charge was legally enforceable without registration.
8. The analogy of a Hindu widow claiming maintenance out of the property left by her husband, as against persons in whom that property is vested, and asking the Court to secure it by charging it against specific property, presents consideration of a similar character. As pointed out in Sham Lal v. Banna Lal (1882) 4 All 296 and Ram Kunwar v. Ram Dei (1900) 22 All 326, the maintenance of a Hindu widow is not a charge upon the estate of her deceased husband until it is fixed or charged upon the estate by a decree or by an agreement. If the parties cannot by mutual consent agree to create such a charge, it is open to the Court, as a Court of equity, to create such a charge in order to secure to the person the right to which she is entitled in an effective manner. An arbitrator has got a similar power derived from an agreement of reference to make a partition to do all that is necessary to secure the rights of the parties by an equitable arrangement, which in the circumstances of the case may appear just and proper.
9. In the present case the award was accepted by the parties at the time it was made. They signed it as a token of their acceptance, and it has since been acted upon and in any case, as pointed out by their Lordships of the Privy Council in Mahomed Musa v. Aghore Kumar Ganguli AIR 1914 PC 27, where the act or the conduct of the parties are founded upon, as in the performance or part performance of an agreement, the locus penitential, which exists in a situation where the parties stand upon nothing but an engagement which is not final or complete, is excluded; for equity will support a transaction, even though it may be clothed imperfectly in those legal forms to which finality attaches after the bargain has been acted upon.
10. The charge was in my opinion, validly created and it was within the competence of the arbitrators to create it and it is not open to either party, after having accepted the award and acted upon it, to go behind it. The charge did not operate to transfer any interest in the mortgaged property. It only provided for the payment of some compensation in a particular manner, and subject to the payment of that compensation the partition was complete so far as it went. The appeal therefore fails and is dismissed with costs.
Ashworth, J.
11. The suit is one by the plaintiff-respondent for recovery of a certain sum with interest by sale, if necessary, of a certain shop. The plaintiff's case is that in a partition made by an arbitrator on a reference the arbitrator awarded the defendant property of greater value than that awarded to the plaintiff, and in order to equalize the division he awarded the sum of Rs. 1,400 to be paid to the plaintiff by the defendant and further added that a shop awarded to the defendant should be treated as makphul for the debt. The lower Courts have decreed the suit. In this appeal it is argued that the arbitrator had no power to make the provision recited as to the security of the payment of Rs. 1,400. It is said that the word makphul should be construed to mean 'hypothecated', but that even if it be construed to mean merely 'charged', the argument will equally hold good. I agree with the appellant's counsel that if the provision should be construed as meaning that the arbitrator took upon himself to hypothecate the shop then this was beyond the arbitrator's power, and for a very simple reason. Until the partition was effected the defendant had no separate title in the shop, and he could not have hypothecated it himself. The arbitrator was functus officio when a complete separation of interest in the property by partition was effected. He could have had no power to provide for subsequent hypothecation of a separate interest only coming into existence by reason of the partition.
12. If however the word 'makphul' be construed to mean merely 'charged', I can see nothing to prevent the arbitrator making this provision. It is clearly within the power of the arbitrator to award to one person a separate and exclusive right in a piece of property, and on the other hand to award as against the person awarded the property a sum to be paid for the purpose of equalizing the value of the shares. This power is given to a Commissioner appointed to make a partition by Order 26, Rule 13, Civil P.C. Now the awarding of a sum to be paid by one party is merely making on behalf of the party a personal covenant by one person in favour of another, his creditor, that he will not transfer certain property to the prejudice of his creditor realizing his debt. Such a personal covenant does not create any interest in the property and for this reason can never be enforced against a transferee without notice.
13. There is a special provision of law that it can be enforced against a transferee with notice (Section 40, T.P. Act); but this provision of law does not denote or suggest that by a charge any interest in the property is transferred. The provision finds a place in the Transfer of Property Act because it affects transfers of property and must not be construed to mean that a charge constitutes an interest or an estate in property. If then the person making a partition can require one party to be bound by a personal covenant to pay a sum of money, he can require him to be bound by a personal covenant not to transfer a specified property to the prejudice of the realization of this money. It does not appear to me that any safe analogy is afforded by decisions as to the maintenance of Hindu widows being declared a charge. The decisions referred to have assumed that a Court in a suit by a Hindu widow for a declaration of her maintenance can make it a charge on specified property, but the power of the Court to do so must be found either in Hindu Law or in some consideration of equity which would not apply to the case of a debt other than a debt on account of maintenance.
14. The question now remains whether the arbitrator's award must be construed to mean that he hypothecated this house or merely directed that it should be charged for the debt of Rs. 1,400. I have already decided that he could not direct it to stand hypothecated. There are reasons other than the one given why he could not do so. As the arbitrator merely has the powers the parties would themselves have, he cannot hypothecate except in compliance with the special formalities prescribed by the Transfer of Property Act. It is clear, therefore, to me that the arbitrator could not direct the property to stand hypothecated, and equally that he could direct that it should stand charged. There is a presumption that a person shall be deemed to act legally and within his powers, and on the basis of this presumption I decide that the arbitrator's award should be construed as merely changing the house and not as hypothecating it.
15. The arbitrator's award sets out that the parties have agreed to the terms of it and in particular to the charge. The fact that the appellant signed this award containing this recitation clearly shows that the appellant-defendant admitted that he had agreed to the terms of the award, but this suit is not based on an agreement but on the award as made by the arbitrator. The question, therefore, whether the appellant was bound by the award as an agreement by himself did not arise. I concur with the view that, if it had arisen, the appellant would have been estopped from denying the fact of his agreement. This would not, however, have helped the plaintiff in the case of the award being construed as a hypothecation deed.
16. There is a further question whether, construing the deed as a hypothecation deed, it could be held binding, although beyond the powers of an arbitrator and although the hypothecation was not effected by the formalities required by reason of part performance. This is a question which I do not consider it necessary to deal with. For the above reasons I concur in the order passed.
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