Full Judgment Text
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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