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Zumaklal Motiram v. Fulchand Tarachand

Bombay High Court

Jan 18, 1940

Judgment

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Structured Summary of the Opinion (Macklin, J.)

Factual and Procedural Background

This appeal arises from the dismissal of a darkhast (an execution application). The underlying dispute began with a 1906 partition suit in which the original plaintiff (father of the present appellant) and the principal defendant (father of the present respondents 2 and 3) obtained a decree allocating shares (the plaintiff 6½ annas; the principal defendant 9½ annas). Between that decree and 1919 the plaintiff filed five darkhasts and obtained satisfaction of various amounts.

In 1920 the three sons of the original plaintiff (the original plaintiff being then dead) presented a darkhast; commissioners were appointed and, on application of the parties, two pleaders and an umpire were appointed to settle partition. After about a year the parties filed a statement before the arbitrators settling the amount due to the heirs at Rs. 22,501 in substitution of the division previously made and asked the arbitrators to decide payment and future interest. One party, Bhagwan, did not sign the purshis.

The Court permitted the arbitrators to make an award providing payment in twelve instalments, with 9% interest on unpaid instalments and acceleration on four defaults. The Court ordered the award to be filed and a decree drawn accordingly because none of the parties objected. No decree was actually drawn because the parties failed to pay the stamp, and the Court then recorded: "The darkhast is disposed of. The parties to bear their own costs."

Over the years subsequent darkhasts (1926, 1931, 1935) for instalments or amounts found due were presented and dismissed for procedural reasons (e.g., plaintiff not present or not wanting to proceed). On 4 December 1936 one heir presented the darkhast at issue in this appeal for Rs. 7,500 previously found due together with interest. The executing Court dismissed that darkhast on the ground that an award cannot be made in execution proceedings and that the decree-holder could not execute a decree obtained through such arbitration. The present appeal challenges that dismissal.

Legal Issues Presented

Whether an executing Court can permit or make a reference to arbitration under the provisions of the Code of Civil Procedure (in particular the schedule dealing with arbitration) in execution proceedings, or whether such arbitration is impermissible in execution.
Whether the arbitration award made in the execution context can be treated as an adjustment of the original decree (and thus be executed) even if the schedule is not applicable to execution proceedings.
Whether the absence of a formal decree drawn up following the award (because the parties did not pay the stamp) prevents execution of the adjusted decree or the award.
Whether the requirements of Order XXI, Rule 2 (regarding recording adjustments in execution proceedings) were satisfied by the Court's order ("the award should be filed and a decree drawn up accordingly").
Whether estoppel or the parties' prior conduct (admission of the award) precludes defendants from challenging the validity of the arbitration at this stage, or whether jurisdictional objections can still be raised.
Whether the award is binding on a judgment-debtor (Bhagwan) who did not sign the arbitration purshis.

Arguments of the Parties

Appellant's Arguments

The arbitration proceedings and resulting award should be regarded as an adjustment of the existing decree; therefore the execution proceedings may properly be founded on that adjusted decree.
Authorities and treatises (notably Sir Dinshah Mulla's note under Order XXIII, Rule 3) show that submissions and awards have been treated as adjustments of suits; by parity they can operate as adjustments of decrees even if the schedule does not apply to execution.
The parties were entitled under Order XXI, Rule 2 to adjust their differences in execution proceedings and could adopt arbitration as their procedure; the Court merely gave formal permission to do what parties could do without it.
Prior conduct of the defendants admitting the award prima facie estops them from denying its validity at this late stage.

Respondents' (Defendants') Arguments

It was unlawful for the executing Court to refer the matter to arbitration, because the provisions of the schedule to the Code of Civil Procedure do not apply to execution proceedings; therefore the 1923 decree/award and subsequent proceedings are bad.
No decree was actually drawn up after the award (due to non-payment of stamp), so the darkhast now has no basis for execution.
Any adjustment resulting from a procedure not provided by the Code is illegal; adapting the schedule to execution proceedings is therefore impermissible.
The present darkhast attempts to execute the award itself rather than an adjusted decree.
There was no adjustment recorded in the manner required by Order XXI, Rule 2.
The award is not binding on Bhagwan, a judgment-debtor who did not sign the arbitration purshis.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
38 BOM LR 13031	Held by a single Judge that the provisions of Schedule 2 of the CPC do not apply to execution proceedings and that an executing Court cannot refer disputes in execution of a decree to arbitration under the schedule.	The trial Court relied on this decision to dismiss the darkhast. The present Court summarises this authority but analyses whether arbitration may nonetheless operate as an adjustment of a decree even if Schedule 2 is inapplicable.
52 CAL 5592	On similar facts, held that the Court was not competent to refer an execution dispute to arbitration and that the award made in such proceedings was invalid and unenforceable.	Referenced by the trial Court as supporting dismissal. The present Court distinguishes the issue by considering whether the award can be treated as an adjustment of the original decree.
53 ALL 5603	Principle that conduct (estoppel) cannot confer jurisdiction where none exists.	Cited in argument to counter the appellant's estoppel point. The Court notes the authority but holds that no jurisdictional defect existed because the Court only permitted parties to do what they could lawfully do without such permission.
54 ALL 254	Same principle: conduct cannot confer jurisdiction where none exists (estoppel does not create jurisdiction).	Used similarly in submissions; the Court acknowledges the principle but finds it inapposite because it concluded that the Court's action did not create a jurisdictional grant but only formalised an adjustment the parties could validly make.

Court's Reasoning and Analysis

The Court proceeded through a sequence of legal observations grounded in the facts recorded:

The starting point was the trial Court's reliance on authorities holding that Schedule 2 of the CPC (dealing with arbitration) does not apply to execution proceedings and that an executing Court may not refer a dispute to arbitration under that schedule. The present Court acknowledged those authorities but examined whether the award could be treated not as an independent fresh decree but as an adjustment of the original decree.
The Court observed that parties are entitled, in execution proceedings, to adjust their differences under Order XXI, Rule 2. Given that right to adjust, the Court reasoned that the parties could, between themselves, refer matters to arbitration and ask the Court to treat the arbitration decision as an adjustment of the decree. Thus, adapting procedures contained in Schedule 2 to effect an adjustment does not necessarily amount to illegality if the end-result is merely an adjustment of the decree agreed between parties.
The Court rejected the submission that permitting arbitration was illegal per se. It characterised the Court's action as giving formal permission to the parties to do what they were prima facie entitled to do without permission. Since the parties could validly settle under Order XXI, Rule 2, there was no intrinsic illegality in allowing arbitration to operate as the chosen method of settlement.
Concerning the contention that the present darkhast sought to execute the award itself (rather than an adjusted decree), the Court examined the darkhast form. It noted that although column 7 contained particulars of the award, column 5 recorded that no payment had been made and that the darkhast was under the Special Regular Darkhast No. 178 of 1920 (the darkhast that resulted in award proceedings). The Court read this as indicating execution of the adjusted decree rather than of the award as an autonomous decree.
On the point that no fresh formal decree was drawn up (because of non-payment of stamp), the Court held that if the award operated only as an adjustment of the original decree then it was not necessary to have drawn a fresh decree. Indeed an executing Court would not be entitled to pass a new decree; the award functioned as an adjustment of the original decree and was thus an appropriate foundation for execution.
Regarding compliance with Order XXI, Rule 2 (that adjustments in execution proceedings be recorded), the Court accepted that the adjustment was not recorded in express terms, but observed that Order XXI, Rule 2 does not prescribe the precise form or place of such recording. The Court considered the order in the award proceedings — "the award should be filed and a decree drawn up accordingly" — to be a sufficient record of adjustment.
The Court addressed the estoppel argument: while the defendants' prior conduct (earlier admissions of the award) prima facie estopped them from denying the award, the defendants argued estoppel could not supply jurisdiction. The Court accepted the legal principle that conduct cannot confer jurisdiction where none exists (citing authoritative decisions), but held in this case there was no question of jurisdiction—since the Court had only authorised parties to do what they could lawfully do themselves—so the estoppel point fortified the appellant's position.
The issue of Bhagwan, a judgment-debtor who did not sign the arbitration purshis, was noted. Although the point had been raised in the issues, it had been dropped during execution and the Court saw no reason to revive it in the appeal.

Holding and Implications

HOLDING: The lower Court was wrong in dismissing the darkhast. The appeal is ALLOWED and the Court directed that execution shall proceed. Costs were awarded to the appellant; the costs in the lower Court will be treated as costs in the darkhast.

Direct consequences:

The executing Court's dismissal on the ground that arbitration could not be used in execution was set aside.
The adjusted decree (as reflected by the award and the Court's order to file the award and draw a decree accordingly) may be executed; execution is to proceed in respect of the claimed sum (as framed in the darkhast before the Court).
The order makes clear that a party's prior admission of an award is a relevant factor; the defendants' prior conduct prima facie estops them from denying the award at this stage.

Broader implications: The opinion reasons that arbitration in execution may operate as an adjustment of an existing decree even if the procedural schedule does not strictly apply to execution proceedings, but the Court did not purport to lay down an extensive new rule beyond its application to the facts before it. The opinion does not explicitly assert that it creates a novel precedent beyond the decision in this appeal.

Disposition: Appeal allowed. Execution to proceed. Costs to appellant; lower Court costs to be costs in the darkhast.

Show all summary ...

Macklin, J.:— This appeal arises out of the dismissal of a darkhast. The original plaintiff sued in 1906 for partition of property in a suit in which the principal defendant was the father of the present respondents 2 and 3. The plaintiff himself was the father of the present appellant. A decree was given allowing the plaintiff a share in the property of 6½ annas and the principal defendant a share of 9½ annas, and between then and the year 1919 five darkhasts were filed by the plaintiff, at which satisfaction of various amounts was obtained. In 1920 the three sons of the original plaintiff, who was then dead, brought a darkhast at which commissioners were appointed to divide the rest of the property. On the application of the parties two pleaders and also an umpire were appointed to settle the partition. After they had worked for about a year the parties filed a statement before the arbitrators saying that they had settled the amount remaining due to the heirs of the original plaintiff at Rs. 22,501 in substitution of the division so far made by the arbitrators and asking that the arbitrators should decide how the amount was to be paid and what future interest should be payable upon it. The principal parties to this darkhast were, as I have said, the heirs of the original plaintiff. But there was also one party, Bhagwan, who did not sign the purshis. The matter was placed before the Court, and the Court allowed the arbitrators to make an award which provided for payment in twelve instalments with nine per cent, interest on any unpaid instalments from the date of default. The whole amount was to be recovered at once in the event of four defaults. The Court then passed the following order:

None of the parties having objected to the award, it is ordered to be filed and decree to be drawn accordingly.

2. But no decree was actually drawn since the parties did not pay the stamp. The Court upon that ground ordered: “The darkhast is disposed of. The parties to bear their own costs.” In 1926 a darkhast was presented for the recovery of one instalment. The defendants were given time to pay, and it was stated by one of the defendants that one of the heirs of the plaintiff had been satisfied in full. It was admitted that under that instalment a sum of Rs. 1401 was due, but the total amount claimed by the plaintiff under the instalment was not admitted. That darkhast was dismissed as the plaintiff was not present to show what properties should be attached. In 1931 another darkhast was presented by the present appellant. That darkhast was dismissed as the plaintiff did not want to proceed with it “for the present.” In 1935 another darkhast was presented for the amount that had been found due (together with interest) in the darkhast of 1931. That also was dismissed as the plaintiff did not want to proceed. On 4th December, 1936, the same heir of the original plaintiff presented the darkhast with which we are now dealing. It was for a sum of Rs. 7500 previously found to be due, together with interest.

3. The defendants contended inter alia that the reference to arbitration in the year 1923 was illegal in so far as arbitration proceedings under the Code of Civil Procedure do not apply to execution, and therefore the decree of 1923 and all subsequent proceedings were bad. They also contended that no decree was actually drawn up and consequently the darkhast had no basis. The executing Court upheld the contention that an award cannot be made in execution proceedings, and also held that it was not open to the decree-holder to execute a decree obtained in such circumstances. The other questions that arose upon the contentions of the defendants, including the question of the amount due, were not gone into. The, darkhast was dismissed upon the legal point, and the darkhastdar now comes in appeal. The trial Court relied upon the decision in 38 BOM LR 13031. There it was held by a single Judge of this Court that the provisions of sch. 2 of the CPC, not being applicable to execution proceedings, it was not permissible to an executing Court to refer a dispute between the parties in execution of a decree to arbitration under the schedule. A decision upon the same lines was arrived at in 52 CAL 5592. In that case on an application for execution of a money decree, an objection was taken by the judgment-debtor that the decree was satisfied out of Court, and the matter being referred to arbitration at the instance of the parties an award was thereupon made. It was held that the Court was not competent to refer the matter to arbitration and that the award made was invalid and unenforceable. But the point taken before us in appeal is that the arbitration proceedings resulting in an award are valid as an adjustment of the existing decree. Neither in the Bombay case cited nor in the Calcutta case was the validity of the arbitration proceedings in execution considered from this point of view. In his notes under O. 23. R. 3, (which provides for the adjustment of suits out of Court and the recording of compromises of suits), Sir Dinshah Mulla cites a number of cases which show that all the High Courts with the exception of the Calcutta High Court have treated the submission and the award in arbitration proceedings as an adjustment of a suit under R. 3 of O. 23; and if arbitration proceedings can operate as an adjustment of a suit, there is prima facie no reason why they should not also operate as an adjustment of a decree, even if (as seems to be the case), Sch. 2 of the CPC, does not apply to execution proceedings.

4. Mr. Dixit on behalf of the defendants has argued that any adjustment which results from a procedure not provided by the Code arises out of an illegal procedure and is itself illegal. But it is difficult to see how there is any illegality in adapting the procedure provided in Sch. 2 to execution proceedings, if those proceedings are regarded merely as a means to the adjustment of the decree. It is open to the parties to adjust their differences under O. 21, R. 2 in execution proceedings, and there is no reason to suppose that they cannot themselves adopt any procedure they like; that is to say that they could without the intervention of the Court refer their differences to arbitration and ask the Court to treat the decision arrived at after arbitration as an adjustment of the decree. All that the Court has done in this case is to give permission to the parties to do what they were prima facie entitled to do even without its permission; and although there may be no specific provision for the grant of such formal permission, it is difficult to see how there is any illegality in giving it.

5. Mr. Dixit however argues that what the darkhastdar is trying to execute is not the original decree as adjusted but the award. He has referred us to the darkhast itself. Col. 7 without mentioning the award gives particulars of the award. That does not mean that what the darkhastdar is trying to execute is the award. Col. 5 of the darkhast, which requires the darkhastdar to state if any payment or adjustment has been made, states that no payment has been given and also states that the darkhast is under Special Regular Darkhast No. 178 of 1920, which was the darkhast that resulted in the award proceedings. The mention of this darkhast of 1920 in the column provided for adjustments implies that what was being executed was the adjusted decree. It was also argued on behalf of the defendants that there was in fact no fresh decree passed upon the award proceedings. But that is immaterial if Sch. 2 does not apply to execution proceedings, since the result of the award would be merely an adjustment of the original decree, and it was not necessary to pass any new decree at all. Indeed it is clear that an executing Court would not be entitled to pass a new decree.

6. Mr. Dixit next argues in support of the order of the Court below that even if we can regard the original decree as having been adjusted and the present proceedings as proceedings in execution of the decree so adjusted, there was nevertheless no adjustment recorded as such as required by O. 21, R. 2. It is true that it was not in terms recorded as an adjustment. But O. 21, R. 2, does not say how or where an adjustment is to be recorded. The order of the Court in the darkhast proceedings “the award should be filed and a decree drawn up accordingly” seems to be a sufficient record of the adjustment. A point was taken on behalf of the appellant to the effect that even if the proceedings for arbitration were invalid, it was not open to the defendants to take the plea at this stage in view of the principles of estoppel and res judicata. There is no question that this is a point which could have been taken before, and the conduct of the defendants, who have up to this stage all along admitted the award, prima facie estops them from denying it now. But it was contended on the other side that the question was really one of jurisdiction; and if the Court had no jurisdiction to refer the matter to arbitration or to accept the award passed in the course of the execution proceedings, then the mere fact that no objection upon this score of jurisdiction was taken at the time cannot confer jurisdiction upon the Court. Similarly in the case of estoppel; conduct cannot confer jurisdiction where none exists: see, 53 ALL 5603 and 54 ALL 254. But no question of jurisdiction was really involved, since, as I have said, all that the Court did in fact was to give formal permission to the parties to do what they were entitled to do without permission.

7. During the course of the execution an issue was raised as to the position of the judgment-debtor Bbagwan who had not signed the arbitration purshis, and in this appeal also it is contended on behalf of the respondents that the award is not binding upon him.

8. It appears however from the record that this point, though raised in the issues, was dropped, and there is no reason why it should be raised again. We think therefore that the lower Court was wrong in dismissing the darkhast. We allow the appeal with costs and direct that execution do proceed. The costs in the lower Court will be costs in the darkhast.

G.N/R.K

9. Appeal allowed.