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CASE NO.: Appeal (civil) 9420-9423  of  1995

PETITIONER: STAR CONSTRUCTION & TRANSPORT CO.  & ORS.

       Vs.

RESPONDENT: THE INDIA CEMENTS LIMITED

DATE OF JUDGMENT:       13/02/2001

BENCH: K.G.Balakrishna, S.R.Babu

JUDGMENT:

RAJENDRA BABU, J.  : L.....I.........T.......T.......T.......T.......T.......T..J

     In  respect of a dispute arising out of a money  claim made  by  the appellants against respondent the  matter  was referred  to arbitration.  The reference was entered into in January  1983.   The  arbitrators published their  award  on 15.2.1986  which,  after setting out certain  matters  which were preliminary in nature, inter alia, stated as under :-

     We  J.C.   Shah  and P.S.   Subramaniam,  Arbitrators appointed  by the parties do hereby award and order that the Company  (Indian  Cements Ltd.) do pay to Star  Construction and  Transport Company Rs.  65,00,000 (in words Rupees Sixty Five Lacs) in full and final settlement of the claim of Star Construction and Transport Company with interest at the rate of  9(nine) per cent per annum from the date hereof;  and we further  award and declare that all the disputes referred to by the parties under the claim made by the Star Construction and  Transport Company and denied by the Indian Cements Ltd. are  finally  disposed of by this Award and that no part  of the  claim  remains undetermined;  and we further award  and order  that  each party to bear its respective cost  of  and incidental to the arbitration proceeding including its share of the amount of remuneration paid by it to the Arbitrators.

     Made  this  15th day of February, 1986 at  Bombay,  in token   whereof  the  Arbitrators   have  subscribed   their signatures which are duly attested.

     The award was filed in court on 15.4.1986 in O.P.  No. 174 of 1986 under Section 14(2) of the Arbitration Act, 1940 (hereinafter referred to as the Act).  A decree was passed in  terms  of  the  award under Section 17(1)  of  the  Act. Thereafter, the respondent by its letter dated 8.8.1986 paid a  sum  of Rs.  49 lacs while withholding a sum of  Rs.   16 lacs  which  is stated to be money claims due to it in  Suit No.   C.S.  246 of 1984 and C.S.  315 of 1984, although this

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was  disputed  by  the  appellants  in  their  letter  dated 5.8.1986.   It was stated therein that a Reconciliation  of Account  had  been furnished to the arbitrators showing  an amount  of about Rs.  16 lacs claimed to be due from them in respect  of  which they had instituted the said  two  suits. The   respondent  contended  that   the  issues  before  the arbitrators  by way of several claims recorded in the  award which  the arbitrators had settled did not take into account moneys  received  by the appellants from it as  advance  and moneys paid by them on their behalf and which stand to their credit  and accordingly credit should be given thereto.   In the  two  pending suits applications were filed under  Order XXIII,  Rule 3 of the Code of Civil Procedure to record  the satisfaction  of  the suit claim and dismiss the  suit  with other  incidental reliefs.  The learned single Judge of  the High  Court who was dealing with the suits passed a judgment on  17.4.1989  allowing the applications by holding that  it was  at the instance of the respondent that the claim in the suit  was brought in before the arbitrators on 8.2.1986  and elected to claim this set off immediately under the award to be  pronounced which was not opposed by the appellants  and, therefore, under these circumstances, instead of an award of Rs.   81 lacs, an award of Rs.  65 lacs was made.  On appeal the  Division Bench of the High Court reversed the  judgment of  the  learned Single Judge by holding that whether  there was  a settlement or not between the parties is a matter  to be decided as an issue in the suit and that the award per se cannot  be considered as having resulted in a settlement  of suit claims.

     The  principal  objection  raised  on  behalf  of  the respondent  is  that the two applications filed under  Order XXIII  Rue  3 C.P.C.  could not be maintained.  It was  also disputed  that  the amounts claimed in the suits related  to the  agreement  dated  27.7.1979 which was not  the  subject matter  of  arbitration.  It was contended that the  subject matter  of  the  suits could not be the  subject  matter  of arbitration  without  further  submission   by  the  parties requesting  the  arbitrators to include the said matter  and factually  there was no such submission.  The learned single Judge  considered the case on the original statements  filed by the respondent before the arbitrators.  The claim in suit C.S.   No.   315  of 1984 was for recovery of a sum  of  Rs. 19,75,821.60 together with interest on Rs.  14,55,625.08 and the  costs.   The claim in the plaint comprised of a sum  of Rs.   9,20,452.17 being the difference between the value  of the  assets taken over by the respondent and the amount  was stated to be due from the appellants to the respondent which formed  the subject matter of the agreement dated  27.7.1979 and  a sum of Rs.  5,35,172.91 was said to be the  liability of  the appellants on account of accrued and unavailed leave of  the workmen employed by the appellants.  Other suit C.S. No.   246  of  1984 was filed for recovery of a sum  of  Rs. 1,53,812.50  with interest at 12% per annum from the date of plaint  and for costs.  The claim of the respondent is  that this  amount represented the motor vehicles tax demanded  by R.T.O.   Salem  for the period from 1.4.1974  to  31.3.1982. According  to the respondent, the amount was payable by  the appellants and the respondent was obliged to pay it when the permits  for  the  vehicles were transferred to it.   It  is after  the decree in terms of the award was passed that  the appellants   wrote  a  letter  to  the  respondent   without prejudice  referring to reconciliation statement of  account filed  by  the respondent before the arbitrators showing  an amount of Rs.  16 lacs claimed to be due from the appellants

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and  proposing  that the respondent should pay a sum of  Rs. 49  lacs being approximately the amount decreed in O.P.  No. 174  of 1986 less the amount claimed by the respondent.  The appellants  also  undertook that on such payment being  made they  would not execute the decree till these two suits  are disposed  of or the matter is settled in a manner acceptable to  both  parties.   This  proposal   was  accepted  by  the respondent  without prejudice and along with a letter  dated 8.8.1986 a cheque of Rs.  49 lacs was sent by the respondent to the appellants.  In that letter it was made clear that in respect  of amounts settled by the arbitrators the claims in the two suits were not included in the settlement arrived at by  the arbitrators.  The appellants suggested that both the parties or their advocates should obtain clarifications from the arbitrators as to whether or not the amount shown by the respondent  as due to it in the statement of  reconciliation of  accounts filed before the arbitrators had been  adjusted by  them  in  awarding  the  sum of  Rs.   65  lacs  to  the appellants.   The respondent did not agree to the suggestion as  in  its  opinion there was no scope  for  obtaining  any clarification from the arbitrators as there was no ambiguity with  regard  to  the issue before them.  The stand  of  the respondent  is clear that the arbitration did not pertain to the  agreement dated 27.7.1979 but only the matters  arising under  the agreement dated 20.8.1974.  An affidavit of  Shri P.S.   Subramaniam  Iyer,  one of the  arbitrators  and  two documents  were  filed  which  are   zerox  copies  of   the statements filed by the respondent before the arbitrators on 8.2.1986.   As  the  original statements  filed  before  the arbitrators  were  also produced in the suit with all  other records of the arbitrators, the learned single Judge did not rely upon the affidavit of Shri P.S.  Subramaniam Iyer as he had  not  been examined before the court and he ignored  the same.   However, the learned Judge proceeded to consider the case  on  the basis of the original statements filed by  the respondent  before the arbitrators which have been  produced in  the court along with O.P.  No.  174 of 1986 and a letter dated  1.2.1986 written by Shri S.  Padmanabhan, who was one of the advocates appearing for the respondent, to the effect that  the respondent had worked out loss at Rs.  72.51  lacs subject to adjustment of amounts payable and receivable.  It was  also  stated  that items marked 9B to 9E could  not  be accepted  in working out the basis for any compromise.   The learned   Judge  proceeded  to   analyse  the  statement  of reconciliation  of account which referred specifically to  a sum  of Rs.  9,20,452.17 which is one of the amounts claimed in  suit C.S.  No.  315 of 1984 and the other amount claimed for leave wages as Rs.  5,35,000/- which are set out in para 6  of the plaint in C.S.  No.  315 of 1984.  With  reference to  the claim in C.S.  246 of 1984 the amount was split into two  paras  in  the statement.  A sum of Rs.   30,000/-  was shown  as  paid to R.T.O.  towards differential tax and  the balance  of  Rs.  1,53,812.50 was shown as a separate  entry tax  arrears  in  respect of vehicles taken  over  from  the appellants  paid on 28.6.1982.  Thus, the learned Judge came to  the conclusion that the amount claimed in the two  suits found  place in the statement of reconciliation of  account. The  learned Judge thereafter referred to proceedings  dated 8.2.1986  in  which  the list of documents attached  to  the original   petition   submitted   during   the   arbitration proceedings  and the description given in the list  attached to  the  original  petition contained 21 items The  last  of which  is  further  documents  of  claimant  and  respondent compromise  proposal  and  reconciliation   of  Accounts  by respondent.   On this basis, the learned Judge found that it

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was  clear that the arbitrators have taken into account  the statement   of  reconciliation  of   account  filed  by  the respondent  before  passing  the award.  The  learned  Judge proceeded  to  observe that the arbitrators would  not  have taken  the statements on record but returned the same to the respective  parties  and proceeded without any reference  to the said statement and, therefore, the respondent was taking undue advantage of the fact that the award is a non-speaking one.   The  learned Judge relying upon the decision of  this Court  in  Smt.  Santa Sila Devi and another  v.   Dhirendra Nath  Sen and others, AIR 1963 SC 1677, held that the  award finally  disposed of all the matters in difference  inasmuch as  there  is an express declaration by the  arbitrators  to that  effect and no part of the claim remained undetermined. The  learned Judge also gave further findings that when  the appellants  had approached the arbitrators with a particular claim  and  the  respondent in defence put forth  its  claim arising  out of the same contract but crystalised to a large extent  by the agreement dated 27.7.1979 which, in fact, set off  before  the  arbitrators  there was  no  necessity  for submission  of  a fresh or independent reference, much  less through  court  and  relied upon the  following  passage  in Russell on Arbitration, 9th Edn, at pages 102 and 103 :-

     It  has been often held that a submission by A and  B of  the  one  part and C of the other, of  all  matters  in difference between them authorises the arbitrator to decide on  all matters that either of the two has against the third jointly  or severally, such as an action by A alone  against C,   on  the  ground  that  the   words  are  to  be   taken distributively.   This  view  was adopted in  the  Court  of Exchequer  and  affirmed  in   the  Exchequer  Chamber  Six partners  by two bonds submitted to arbitration all  matters relating  to  their  trade.  By the one bond three  of  them became  jointly  and severally bound to the other  three  to obey the award as to all matters between the partners or any of  them.  But the second bond the latter three became bound to  the  former three in like manner.  It was held that  the arbitrator  was  authorised to award on a matter in  dispute between  two  co-  obligators only, on the ground  that  the reference  was  of all matters between them or any  of  them Winter v.  White (1819) IB & B 350.

     A  reference  of  all matters in difference  gives  an arbitrator  power over all matters down to the period of the submission,   but  does  not   except  under  very   special circumstances,  enable him to award on future and contingent claims,  or  to  give damages in respect  of  money  demands becoming  due  after  the  date of  the  submission,  though pursuant  to  an  agreement made previous to it,  or  indeed respecting  any  subjects  of   dispute  arising  after  the reference.

     Even  if the submission be of all differences and  of anything  in anywise relating thereto these latter words do not  extend  the power of the arbitrators to  matters  which though relating to the existing differences, arise after the date of the submission nor do they authorise the calculation and awarding of interest subsequent to that date.

     The  parties  may,  however, if they please  give  the arbitrator  power  to determine on contingent claims, or  on matters  in dispute or demands arising after the date of the submission and this course has often been perused.

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     The learned Judge, therefore, held that it was open to the  arbitrators to arbitrate the same.  Alternatively,  the learned  Judge proceeded to state that even if the reference was limited, it was open to the parties to enlarge the scope thereof  as  it  was not a reference made by a  court.   The statements  in  writing  filed  by the  parties  before  the arbitrators  were  sufficient to serve the purpose  and  the absence of signature of any representative of the respondent does not at all matter.  The learned Judge also proceeded to consider  that  the respondent had elected to claim set  off before  the  arbitrators and having chosen to work out  that remedy  it is not open to the respondent to pursue the  same by  ignoring  the  award.  It was held that  the  respondent having  obtained  the benefit under the award,  namely,  the adjustment of the amounts due from the appellants as against the  amounts found payable to the appellants, it is not open to  the respondent to challenge the validity of the award in the  proceedings,  particularly when the appellants had  not raised  any objection to a decree being passed by the  court in  terms  of  the  award.  Appeals were  filed  before  the Division  Bench  of the High Court by the respondent,  which were  allowed  relegating  the  parties to  thrash  out  the question  whether  there is a settlement or not between  the parties  is  a matter to be decided as an issue in the  suit and  that  the award per se cannot be considered  as  having resulted  in a settlement of the suit claim.  These  appeals are directed against that order of the Division Bench of the High  Court.  Shri F.S.Nariman, learned senior Advocate  for the appellants, submitted that if the conclusion is that the award  has  resulted in a settlement of the suit claim,  the court  ought  to  have  given a finding  that  there  was  a settlement  between the parties and hence nothing remains in the suit to be decided.  He focussed his attention mostly to the  question that the award on the face of it indicates the settlement  of the suit claim.  To support this proposition, he  heavily  relied upon the view expressed by  the  learned Single  Judge  while disposing of the suits on the basis  of the  applications  filed  under Order XXIII, Rule 3  CPC  to which  we have made elaborate reference.  He submitted  that the  fact is that the reference to the arbitration was  made in  pursuance  of  clause  24 of the  agreement  dated  20th August, 1974 as a private reference validly made without the intervention  of  the court.  He submits that clause  24  is very  wide  in  its  terms  to  include  all  questions   of difference whatsoever touching upon the agreement or subject matter  thereof or arising out of or in relation thereto and whether  as  to construction of the agreement or  otherwise. When  the  appellants  approached  the  arbitration  with  a particular  claim,  the  respondent in defence  thereto  put forward  its  claim  arising out of the  same  contract  but crystallised  to  a  large  extent by  the  agreement  dated 27.7.1979.   The later agreement between the parties emerged only out of the earlier contract which was the foundation of the transaction between the parties.  The respondent pleaded only  a  set off or a counter-claim before  the  arbitrators while  defending  the claim put forward by  the  appellants. Thus  there  was no necessity for submission of a  fresh  or independent  reference  and much less through a Court.   The fallacy in this approach is that when the reference was made in  respect  of  the disputes arising out of  the  agreement dated  20.8.1974  and  those disputes had to be  settled  no claim by way of set off or a counter-claim was raised by the respondent  herein.   It  is only at the last stage  of  the proceedings  a  reconciliation statement is stated  to  have

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been  filed  which,  it is said, has  reference  to  certain claims  made in the two suits and those claims are stated to have been taken into consideration in the non-speaking award in  deciding  the claims of the parties by the  arbitrators. In  the case of a non-speaking award, trite to say that  the mental process of the arbitrators in reaching the conclusion cannot  be  gone  into  or  examined as  the  same  are  not disclosed  in the award.  Therefore, to glean into the minds of  the  arbitrators to find out whether they  included  the claims  stated  to  have  been made  in  the  reconciliation statement  is  a  very torturous process, not an  easy  one, hazarded  with too many difficulties.  To get out of such  a quagmire Shri Nariman very astutely contended that there was a  reference  to  the documents filed in the  case  and  the reconciliation statement is one such which was also produced before  the  court when the award was filed for passing  the decree  in terms thereof which would indicate that this  was present  to the minds of the arbitrators.  Whether it is  so or not can only be imagined and not definitely inferred from the facts.  Therefore, this line of reasoning adopted by the learned  Single  Judge  does  not appeal to us  nor  are  we impressed  with the alternative view taken by him that  even assuming  that  the  scope  of the  original  reference  was limited,  it  was open to both parties to enlarge  the  same before  the arbitrators as it was not a reference made by  a court.   Even if it were so, there is no way of finding  out the  rationale  on which the arbitrators passed  the  award. Though it may have been permissible to refer such a dispute, whether  in fact done so, is the question.  That is a matter which  is  under serious dispute between the parties.   Shri Nariman pointed out the conflict in decisions in relation to the  question whether the matters in difference in a pending suit can be referred to the arbitration without the order of the  court  and when the same would result in settlement  of claim in the suit.  However, that aspect also does not arise for  consideration at this stage of the proceedings.  We may also  notice  that the learned Single Judge is of  the  view that  the  respondent  having taken advantage of  the  award which,  in  fact, took note of the reconciliation  statement they  are  estopped  from  contending   that  there  is   no significance   of  the  suit   claims  in  the   arbitration proceedings.   Again,  this  view proceeds on the  basis  of award  being  made after taking note of  the  reconciliation statement,  which  conclusion  we  have pointed  out  to  be slippery.   Hence  this  aspect  also does  not  assist  the appellants.

     In  this  case,  applications are  filed  under  Order XXIII,  Rule  3 CPC.  This rule is a provision for making  a decree  on  any lawful agreement or compromise  between  the parties  during  the pendency of the suit by which claim  is satisfied  or  adjusted.   The   agreement,  compromise   or satisfaction  may relate to the whole of the suit or part of the  suit or it may also include matters beyond the  subject matter  of the suit.  But Rule 3 clearly envisages a  decree being  passed  in  respect of part of subject  matter  on  a compromise.   Whether  in fact there has been compromise  or adjustment  of the suit claim or any part thereof is  itself put  in  dispute  in  this   case.   Unless  it  is  clearly established  that such accord or compromise has been entered into  between the parties, the powers under Order XXIII Rule 3 CPC could not be exercised.  The respondents case is that the claim made in the suit were never before the arbitrators in   any  form  and  even   the  figures  mentioned  in  the reconciliation  statement  also do not pertain to  the  suit

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claim and the scope of reference to the arbitrators does not enable  them to make an award on that aspect of the  matter. Those objections have to be dealt with appropriately on full trial.  That is the course now adopted by the Division Bench of  the  High  Court.  Although many  other  arguments  were addressed  before  us  as to the scope  of  the  proceedings before an arbitrator as to how in the course of arbitration, additional  claims  can  be  raised   before  them  and   an adjudication  thereof,  if results, an award is  binding  on parties.   These aspects also do not help the appellants  in any manner for we find that there must be factual foundation for  those claims and established in the course of a  trial. Uninfluenced  by  the  views of the Division Bench  we  have examined  the correctness of the order of the learned Single Judge  made  in  the two suits on applications  filed  under Order  XXIII  Rule 3 CPC and we are clearly of  the  opinion that  the  order  of  the learned  Single  Judge  cannot  be sustained.   The  Division Bench of the High Court  has  not shut  out  the  case put forth by the  appellants  but  only relegated the parties to work out their respective rights in an  appropriate manner in the course of a suit.   Therefore, we  find no merit in these appeals and the same shall  stand dismissed.  The parties shall bear their own costs.