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PETITIONER: PARKASH CHAND KHURANA ETC.

       Vs.

RESPONDENT: HARNAM SINGH & ORS.

DATE OF JUDGMENT28/03/1973

BENCH: CHANDRACHUD, Y.V. BENCH: CHANDRACHUD, Y.V. DWIVEDI, S.N.

CITATION:  1973 AIR 2065            1973 SCR  (3) 802  1973 SCC  (2) 484

ACT: Practice--Award  of  arbitrator--Decree in terms  of  award- Provision  for-  return of property in  default  of  certain payments--Executability.

HEADNOTE: The respondent erected a factory on a plot of land  allotted to them by the Faridabad Development Board.  They agreed  to sell  their  rights  in  the plot and  the  factory  to  the appellants.   Disputes having arisen between the parties  on certain  matters  relating  to  the  agreement,  they   were referred to arbitration.  The arbitrator gave an award and a decree  was passed in terms of the award.  Under the  award, the appellants were liable to discharge the liability of the respondents  to the Faridabad Development Board in  the  sumof  ab out  Rs. 23,000/-.  The appellants were to  pay  this amount within 1 1/2 years, or, alternatively, to obtain from the  Board within that period a complete discharge  for  the respondents.   In default of such payment,  the  respondents were  entitled  to  take back possession  of  the  plot  and factory.   The appellants paid only a sum of Rs. 8,000/-  to the  Board  and this sum was shown in the  accounts  of  the Board  as  if paid by the respondents.   As  the  appellants committed  default the respondents took out execution.   The appellants  opposed the application but the High  Court,  in Letters Patent appeal, directed execution to proceed. Dismissing the appeal to this Court, HELD:     (1) There is no support for the contention of  the appellants that the default on their part-occurred by reason of  the  non-cooperation of the respondents.   The  evidence shows that the appellants were not in a position to make the payment. [807F-G] (2)  By  the respondents transferring their entire  interest in the property to the appellants there existed a foundation for  the creation of privity between the appellants and  the Board’;  but  the  Board  never  agreed  to  substitute  the appellants as its debtors in place of the respondents.  Even after accepting the sum of Rs. 8,000/- from the  appellants, the  Board  was  entitled to recover the  balance  from  the respondents. [807H; 808 B-D] Kandarpa  Nag v. Banwari Lal Nag and Ors., A.I.R. 1921  Cal. 356(2),  Mitha and Ors. v. Remal Dass and Ors., A.I.R.  1937

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Lah.  828 and Sheikh Mohidin Tharagan  v.  Vadivalagianambia Pillai, 22 I.C. 37, referred to. (3)  The  recital  in the award that on the failure  of  the appellants to make the payment the respondents were entitled to  take back possession of the plot and the factory has  to be  considered  in the entire scheme of the  award,  and  so considered,  there  is no doubt that it was not  merely  the possession of the property but the title thereto also  would pass to the respondents. [809 C-D] (4)  The appellants’ liability to pay the dues of the  Board would operate  only  if the title to the property is  vested in them. [809E-F] (5)  The  tenor of the award shows that the  arbitrator  did not intend merely to declare the rights of the parties.   It is  a clear intendment of the award that if  the  appellants defaulted  in discharging their obligation under  the  award the respondents would be entitled to apply for execution and obtain possession of the property. [809 F-H]  803 (6)  The clause in the award providing for the right of  the respondents  it to obtain possession of the property on  the appellants  committing  default is not in the  nature  of  a penalty  against  which the appellants are entitled   to  be relieved.   Moreover,  the term is  contained  in  a  decree passed by the Court in terms of the award and no relief  can be  granted  as against the terms of a decree.,  The  award- decree  could not be treated as a consent  decree,  because, the  award  was  valid  on its,  own  independently  of  any decision of the parties not to object to it. [810 A-D]    Kandarpa  Nag  v. Banwari Lal Nag and Ors.,  A.I.R.  1921 Cal., 356(2), Mitha and Ors. v. Remal Dass and Ors.,  A.I.R. 1937  Lah. 828 Sheikh Mohidin Tharagan v.  Vadivalagianambia Pillai 22 I.C. 37 and Chanbasappa Gurushantappa Hiremath  v. Basalingayya Gokurnaya, 51 I.L.R. Bom. 908, referred to.

JUDGMENT: CIVIL  APPELLATE  JURISDICTION : Civil Appeal  No.  1866  of 1967. Appeal  by  certificate from the judgment and  decree  dated September  15,  1967 of the Punjab & Haryana High  Court  at Chandigarh in Letters Patent Appeal No. 139 of 1965. D.   V. Patel, G. S. Vohra, R. P. Agarwal and M. V. Goswami, for the appellants. G.   L.  Sanghi, C. S. Rao,  J. B. Dadachanji, O. C.  Mathur and Ravinder Narain, for the respondents. The Judgment of the Court was delivered by CHANDRACHUD,  J.--Plot No. 29-B Industrial Area,  Faridabad, was  allotted  in the year 1952 to the  respondents  by  the Faridabad Development Board.  Respondents erected  buildings on  the  plot,  installed machinery therein  and  started  a factory in the name and style of "Bharat-Rubber Mills".   By an  agreement of May, 1955 respondents sold their rights  in the plot and the factory to the appellants.  Disputes  arose between  the  parties on, certain matters  relating  to  the agreement, which the parties referred to an arbitrator.  The arbitrator  gave his award on August 4, 1955 and  the  award became a rule of the court on August 23, 1956. One  of the principal terms of the award, broadly, was  that the  appellants  were to pay a certain sum of money  to  the Board  in discharge of the liability of the respondents  and on  their  failure to make the payment, they were  to  give, back  the,  possession of the plot and the  factory  to  the respondents.   The  appellants not having paid  the  amount,

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respondents  filed  a series of execution  applications  the last of which is dated January 15, 1964.  Appellants opposed that  application on various grounds which were rejected  by the  executing  court  and the  execution  was  directed  to proceed.  Appellants filed an appeal against the judgment of the  executing court, which was allowed by a learned  single Judge of the High Court of Punjab and Haryana.   Respondents challenge- 804 ed  that judgment in Letters Patent Appeal No. 139 of  1965. That appeal was allowed by a Division Bench on September 15, 1967  and the judgment of the executing court was  restored. The High Court has granted to the appellants leave to appeal to this court from its judgment under Article 13 3 (1 )  (a) and (c) of the constitution. Under  clause 2 of the award, the appellants were liable  to discharge the liability of the respondents to the  Faridabad Development  Board  in  the sum of  Rs.  23,686-6-0.   Under clause  7, the appellants were to pay this amount  within  1 1/2 years or alternatively, to obtain from the Board  within that period a complete discharge for the respondents.  It is common  ground that within the stated period the  appellants had paid a sum of Rs. 8,000/only to the Board.  In addition, they had forwarded to the Board for its acceptance  verified claims  in the sum of Rs. 10,000/which they held  under  the Displaced  Persons  (Compensation and  Rehabilitation)  Act, 1954.   The  Board was evidently disinclined to  accept  the verified  claims  in  discharge  of  the  liability  of  the respondents.  Assuming, however, in favour of the appellants that ’the verified claims constituted a valid payment,  they had  still not paid to the Board the full amount which  they were  liable to pay under clause 2 of the award, within  the period mentioned in clause 7. As  the appellants committed default in the payment  of  the aforesaid amount, the consequence prescribed by clause 7  of the  award would follow, namely, that the respondents  would be entitled to take back possession of the property from the appellants.   Learned counsel appearing for the  appellants, however,  argues that the respondents refused to  co-operate with the appellants and in the absence of such  co-operation the appellants, though ready and willing to pay the  amount, were  unable to do so.  They cannot. therefore,  be  visited with the penal consequences provided for by clause 7 of  the award. Our attention has been drawn to the bulk of the  correspond- ence that transpired between the appellants and the Board on the ,one hand and the appellants and the respondents on  the other but we see therein no support for the contention  that the default on the part of the appellants occurred by reason of  the  non-cooperation  of  the  respondents.   Appellants created impediments in their own way by asking the Board  to accept verified claims in discharge of the liability of  the respondents.   The  Board was under no legal  obligation  to accept  the verified claims, not at any rate without  proper scrutiny.  and such scrutiny could notoriously  take  longer than the period of 1 1/2 yearsprovided for by clause 7  of the award.  It was for the appellants to find ways and means to satisfythe dues of the Board in a form acceptable to it but they failed to  805 do so.  The co-operation of the respondents had no place  in this, picture. Clause  7  of the award, in so far as is  relevant  on  this aspect,. reads thus :               "In  case  the  second  party  does  not  make

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             payment to the Faridabad Development Board  as               mentioned  in clause No. 2,  mentioned  above,               for  a period of 1 1/2 years or does not  take               the  liability  of the  Development  Board  on               itself as a result whereof the liabilities  of               the  first  party do not come to  an  end,  as               mentioned  in clause No. 2,  ........  1......               the first party shall be entitled to take back               the possession." It is clear that the appellants, had a two-fold option under this  clause.   They had either to make the payment  to  the Board within the stated period or they had to enter into  an arrangement  with  the  Board  in  order,  effectively,   to terminate  the  liability of the respondents to  the  Board. The first option was not availed of by the appellants.   But the  appellants  drew our attention  to  the  correspondence between the concerned parties in an effort to establish that by accepting part payment of the amount from the appellants, the  Board  had agreed to substitute the appellants  as  its debtors  in place- of the respondents,  thereby  terminating the liability of the respondents. The agreement between the appellants and respondents, where- by  the  latter sold their interest in the property  to  the appellants  was executed in May, 1955.   The  correspondence began  with  a letter Ex.  J.D. 12, dated May 20,  1955  and continued  at least till the early part of 1957.   By  their letter   Ex.    J.D.  12,  the   appellants   informed   the Administrator,  Faridabad Development Board, that  they  had decided to make payment of all the amounts due to the Board. By  a letter Ex.  J.D. 13 dated October 5, 1955, the  appel- lants informed the Administrator that they had purchased the factory  from  the  respondents and  they  inquired  of  the Administrator  whether, the verified claims held by them  in respect  of the property which they owned in Pakistan  could be  accepted  in  satisfaction  of  the  liability  of   the respondents.   Further  correspondence  ensued  between  the parties  and on January 16, 1956 the Administrator wrote  to "M/s.  Bharat Rubber Mills, Faridabad" asking them to pay  a sum  of Rs. 27,325-9-0 which had accrued due on  account  of premium,  ground  rent  and house  rent.   Appellants  place strong  reliance  on this letter in order to show  that  the Board  looked  to  them for meeting  the  liability  of  the respondents,   which  according  to  the  appellants,   must effectively  discharge the respondents from their  liability to  the Board.  We are unable to read the letter  as  having any such effect.  The Administrator used to address all 806 correspondence  to "M/s.  Bharat Rubber  Mills,  Faridabad", because  it is they who were liable to pay the dues  of  the Board.   The letters, though not specifically  intended  for the  appellants,  naturally fell into  their  hands  because under  an agreement with the respondents they had  purchased the  "Bharat Rubber Mills" and were in  possession  thereof. The  particular  letter, therefore, would be  inadequate  to establish  that  the Board had recognised  the  transfer  in favour  of  the  respondents  or  that  it  had  agreed   to substitute  the appellants as its debtors, in place  of  the respondents.        Reliance is then placed on 5 letters : Exhibits  J.D. 20,  21,  22, 25 and 23 dated April 10,  1956,  October  25, 1956,  November  15, 1956, January 7, 1957 and  January  30, 1957  respectively,  ,for  showing  that  by  accepting  the payment  of  Rs. 8,000/- from the appellants the  Board  had recognised  the  appellants  as  its  debtors,   discharging thereby  the  respondents  from  their  liability.   By  Ex.

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J.D.20,  the  appellants informed the Board  that  they  had purchased  the property from the, respondents and that  they were  ready and willing to pay the entire dues of the  Board according to the terms of the award.  The Board did not send a  reply  to  this letter and that  abstention,  though  not commendable  in  a  publicbody,  militates  against   the inference  that the Board had recognised the  appellants  as its debtors in place of the respondents. Along  with the letter Ex.  J.D.2 1, appellants  enclosed  7 cheques ,of Rs. 1,000 each and agreed to pay the balance  in monthly  instalments  of  Rs. 1,000.  By  their  letter  Ex, J.D.22  the  appellants requested the Board to  deposit  the aforesaid  7 cheques in the bank, not all at once  but  one per  week.   It appears that in course ,of time,  the  Board realised  the  amount sent by the appellants through  the  7 cheques.   By  their  letter  Ex.   J.D.25,  the  appellants requested  the Board to send an official receipt in  respect of the ,sum of Rs. 7,000.  Finally, by. the letter Ex.  J.D. 23  the appellants ,sent to the Board yet another cheque  in the  sum  of Rs. 1,000 along with true  copies  of  verified claims  in the sum of Rs. 10,000.  The cheque for Rs.  1,000 was cashed by the Board in course of time ’ but the verified claims, though not returned, were at no stage ,accepted.   It   seems  to  us  difficult  from  the  tenor  of   this correspondence  to  ’hold that the Board  had  accepted  the appellants   as  their  debtors  in  substitution   of   the respondents, thereby releasing the letter from their primary liability.  The Board was interested in recovering its  dues and  the circumstance that payments made by  the  appellants were accepted by it cannot have the effect of releasing  the respondents  from the undischarged liability.   Normally,  a public   authority  like  the  Board  would  not  agree   to substitute a new debtor in place of the old without at least a formal inquiry into the  807 solvency of the former.  There seems no evidence of such  an inquiry.   The argument of the appellants that by  paying  a part  of  the amount due to the Board they  had  obtained  a valid discharge for the respondents in regard to the  entire claim  of the Board overlooks that even after accepting  the sum  of  Rs. 8,000 from the appellants, the Board  would  be entitled  to recover the ’balance from the respondents,  who were primarily liable to pay the amount.  It would be  wrong to  hold,  in  the absence of a formal  recognition  of  the appellants  by the Board as its debtors, that the  liability of the respondents had come to an end.      In fact, by their letter Ex.  J.D. 3 dated February  6, 1957  the Board wrote to the appellants in answer  to  their letter  of January 30, 1957 that the payments made  by  them were  "credited  to the account of M/s.   Harnam  Singh  and Tarlok  Singh, Proprietors, Bharat Rubber Mills,  Faridabad" and  that  the Board could not recognise the  appellants  as transferees of the plot unless and until the entire sum  due from  the  respondents was paid.  Harnam  Singh  and  Tarlok Singh are respondents to this appeal.  On March 20, 1960 the Assistant   Settlement  Commissioner  in  the  Ministry   of Rehabilitation,  Government  of India, wrote  a  letter  Ex. J.D.  5 to the appellants that the transfer in their  favour was never recognised by the Board.  It would appear that  in the  meanwhile,  the appellants had sent 3  cheques  to  the Board  but  those  cheques were returned  by  the  Assistant Settlement Commissioner along with letter Ex.  J.D. 5. These two letters were undoubtedly written by or on behalf of  the Board after February 4, 1957 when the period of 1 1/2’ years prescribed by clause 7 of the award expired, but it would be

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wrong  to ignore these letters on the supposition  that  the Board had entered into a conspiracy with the respondents  in order  to  defeat  the title of  the  appellants.   Such  on inference was pressed upon us but there is no basis for  it. The  attitude  of  the  Board  rather  shows  that  it   was interested in recovering its dues and had waited long enough to enable the appellants to make the payment.  The truth  of the matter, as held by the Division Bench of the High Court, seems  to be that the appellants were not in a position  to make the payment.     It  is  interesting  to note  that  the  appellants  had themselves stated in paragraph 8 of their Objections to  the execution  application filed by the respondents,  that  they wanted to make the payment of the entire amount to the Board but  that the Board had refused to recognise them  and  that the  payment  of  Rs. 8,000 made by them was  shown  in  the accounts of the Board as if it were made by respondents.  It is  clear  from  this statement  that  the  appellants  were conscious  that the Board had refused to recognise  them  as its debtors, in place of the respondents. 808 In  this  view, it is unnecessary to  consider  whether  the letter  Ex.D.H.  7  dated February 17, 1956  alleged  to  be written by the respondents to the Board. is genuine or not. The   decisions,  in  Nochulliyil  Euzhuvan  Theethi’s   son Thethalan v. The Eralpad Rajah Styled Flaya Rajah Avargal of Patinhara  Kovilagam & Ors., (1) Saradindu Mukherjee v.  Sm. Kunja  Kamini  Roy  and Ors., (2 )  and  Krishna  Bhatta  v. Narayana  Achary  and  Anr.,(3)  on  which  the  appellants’ counsel  relies  can be of no assistance.  It  was  held  in Nochulliyil’s  case that the mortgagee with possession  from the lessee is not liable to the lessor for rent as there  is neither  privity of estate nor privity of  contract  between them.   It  is  undoubtedly true that  the  respondents  had transferred  their  entire interest in the property  to  the appellants and therefore there existed a foundation for  the creation of a privity between the appellants and The  Board. However,  as  indicated  above, the Board  never  agreed  to substitute  the  appellants as its debtors in place  of  the respondents.   In  Saradindu Mukherjee’s case, it  was  held that  an express or implied recognition by the lessor  of  a transferee  from the original tenant would be  effective  to discharge the liability of the tenant.  In the instant  case the evidence of such recognition is lacking Krishan Bhatta’s case is distinguishable for the same reason. It is then contended that on the appellants defaulting,  the respondents  would  at the highest be  entitled  to  recover possession  of the property from them but their  title  will not  pass with such parting of possession.  Clause 7 of  the award on which the appellants’ counsel relies in support  of this  argument  provides that if  the  appellants  committed default in payment of the amount, the respondents "shall  be entitled to take back the possession".  This term, torn from the  rest  of  the  award,  may  lend  plausibility  to  the appellants’  contention but for a true construction of  that term.  one  must  have regard to the entire  scheme  of  the award.   Clause 7 itself contains. a specific  recital  that until  such time as the Board’s dues remain  unsatisfied  or the  liability of the respondents remains undischarged,  the appellants "shall not be competent to transfer the rights of Bharat  Rubber  Mills in the factory,  site,  building,  and machinery etc., in any manner by means of mortgage, sale  or to  remove  the  same"  and  that  the  possession  of   the appellants during the interregnum ,hall be deemed to be "in trust".   This’  recital  leaves  no  ’doubt  that  if   the

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appellants   committed   default   in   discharging    their obligations  under the award, not merely possession  of  the property  but  the  title thereto would  pass  to  the  res- pondents;  or else, it was meaningless to put restraints  on the  power  of the appellants to deal with The  property  as owners and to provide (1) 40 T.L.R. Madras III 1.    (2) A.T.R. 1942 Cal. 514. (3)  A.T.R. 1949 Mad. 618.  809 that  so  long as they did not discharge  their  obligations they would be in possession as trustees.  Such a trusteeship can,  in  the circumstances, enure for the  benefit  of  the respondents alone. If  the appellants, on defaulting, were liable  to  handover mere  possession to the respondents, it would, be  difficult to  work  out the consequent rights and obligations  of  the parties.   There  is  no provision in the award  as  to  the further  period within which the appellants  must  discharge their  obligations, nor indeed is there any provision as  to whether the respondents, after getting back possession  from the  appellants, would be free to deal with the property  in the  ordinary  course  of business.  If  the  title  to  the property  was  to remain vested in the  appellants  and  the respondents were to obtain the mere husk of possession,  the appellants might contend for recovering from the respondents the  entire  fruit of their labour,  after  discharging  the obligations   under   the  award  at   their   leisure   and convenience.  We are therefore clear that on failure of  the appellants  to, discharge their obligations under the  award within the stated period, the possession of the property and along   with  it  the  title  thereto  must  pass   to   the respondents’. There  is  no sense of realism in the  apprehension  of  the appellants  that after recovering possession from them,  the respondents could still insist that they should pay the  sum of Rs. 23,000,/and odd to the Board.  Clause 3 of the  award which,  along  with clauses 2 and 7,  makes  the  appellants liable  to pay the dues of the Board would operate  only  if the title to the property is vested in the appellants.   The liability  to  pay  the dues of the  Board  is  ancident  of ownership  and  would therefore pass with the title  to  the property. , The  next contention of the appellants is that the award  is merly  declaratory  of  the rights of  the  parties  and  is therefore  inexecutable.   This contention is based  on  the wording of clause 7 of the award which provides that on  the happening  of  certain  events  the  respondents  "shall  be entitled  to  take back the possession".  We are  unable  to appreciate   bow   this  clause  makes  the   award   merely declaratory.    It   is  never  a   pre-condition   of   the executability  of  a decree that it must  provide  expressly that  the party entitled to a relief under it must  file  an execution application for obtaining that relief.  The  tenor of the award shows that the arbitrator did not intend merely to  declare  the  rights  to the parties.   It  is  a  clear intendment of the award that if the appellants defaulted  in discharging   their   obligations  under  the   award,   the respondents  would  be  entitled to  apply  for  and  obtain possession of the property. The last contention of the appellants is that the particular term of clause 7 of the award providing for the right of the respondents  to  obtain possession of the property  on’  the appellants committing 4-1,797Sup.CI/73 810

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default  is  in  the  nature of  a  penalty,  against  which appellants are entitled to be relieved.  One answer to  this contention is that it is impossible to treat the  particular term  as in the nature of a penalty.  Secondly, the term  is contained  in a decree passed by the court in terms  of  the award and no relief can be granted as against the terms of a decree  stands  on  the same footing  as  a  consent  decree because  both  the parties expressly agreed that  the  award should  be  made a rule of the court.  The  failure  of  the respondents  to  object to the award may stem  from  several considerations,  including the one that an award can be  set aside  only  on the grounds specified in section 30  of  the Arbitration  Act, 1940, and none of those grounds  may  have been  available to them.  We, therefore, see no warrant  for the  view  that  the award decree should  be  treated  as  a consent decree.  The award of the arbitrator did not get its efficacy  by reason of the fact that the parties  agreed  to it.   The award was valid on its own, independently  of  the decision  of the parties not to object to it.  On the  other hand,  the  validity of a compromise decree flows  from  the consent  of the parties.  The decisions in Kandarpa  Nag  v. Banwari Lal Nag and Ors.,(1) Mitha and Ors. v. Remal Dass  & Ors.,    (2)   and   Ana   Sheikh   Mohidin   Tharagan    v. Vadivalagianambia  Pillai(3)  relate  to  penal  clauses  in compromise  decrees and are therefore distinguishable.   The Full Bench decision in Chanbasappa Gurushantappa Hiremath v. Basalingayya  Gokurnaya Hiremath & Ors., (4 ) can also  have no  application  because that case is an authority  for  the limited   proposition,  prior  to  the  enactment   of   the Arbitration  Act,  1940, that where in a suit  parties  have referred their dispute to an arbitration without an order of the  court  and an award is made, a decree in terms  of  the award  could be passed by the court under Order XXIII,  Rule 3,  of  the Code of Civil Procedure.  In the  instant  case, parties  agreed to refer their disputes to arbitration  when no suit was pending and the award subsequently became a rule of the court. For these reasons we confirm the judgment of the High  Court and dismiss the appeal with costs. V.P.S.                                Appeal dismissed. (1)  A.I.R. 1921 Cal 356 (2). (2)  A. I.R. 1937 Lab. 828. (3)  22 1. C. 37. (4)  51 1. L. R. Bom. 908 811