Arbitration Act, 1940: s. 21 – Parties to suit may apply for order of reference – Dispute between the parties – Suit filed for the settlement of accounts – Thereafter, application by the respondent for appointment of Chartered Accountant-CA as Commissioner, to submit report after conducting audit of accounts – Appointment of CA – Pursuant thereto, submission of report by CA before the court stating the amount due and payable by the appellant to the respondent – Thereafter, objections by the appellant that CA was appointed as Commissioner u/Or. XXVI r. 9 and not as arbitrator u/s.21 – Rejection of objections – Order appointing the CA as an arbitrator attained finality, and also upheld by the High Court – On appeal, held: Report of the Chartered Accountant is not an award and is to be treated as a report of a Commissioner appointed by the court u/Or. XXVI r. 11 – There is distinction between the scope and functions of an arbitral tribunal and a commissioner appointed u/Or. XXVI rr 9 and 11 – For submission to arbitration, there must be an arbitration agreement or an agreement in terms of s. 21 – Whereas the Commissioners are appointed by the court, may be with consent of the parties, or even when there is objection to the appointment – Pre-existing agreement or the requirement that the parties agree before the court, as is mandatory in case of arbitration, is not necessary when a court directs appointment of a commissioner – On facts, when the court appointed the CA who as an expert was required to give his opinion on the statement on accounts to facilitate and help the court to adjudicate and finally decide the suit – Instant application cannot be read as moved on a prior agreement or consensus for reference to arbitration as was not signed by the appellant – Raising no objection as to appointment of CA does not give rise to an affirmation that the appellant had agreed to his appointment as an arbitrator so as to substitute court jurisdiction – Moreover, the court always maintained its dominion over the subject matter of the suit – Thus, the order of High Court set aside – Code of Civil Procedure, 1908 – Or. XXVI r. 11.
Allowing the appeal, the Court
HELD : 1.1 The first condition for invoking Section 21 of the Arbitration Act, 1940 is that the parties to the suit must agree that any matter of difference between them would be referred to arbitration. All interested parties must agree and apply to the court where the suit is pending to obtain an order of reference to arbitration. The subject matter of the reference must be any of the matters between the parties to the suit. Entire subject matter of the suit may not be referred to arbitration. Parties may agree to only refer a part or portion of the dispute to arbitration. The expression ‘agree’ is significant and expressive as to when a court can exercise jurisdiction under Section 21 of the Act. Word ‘agree’ means any arrangement or understanding or action in concert. The Contract Act, 1872 states that an agreement may be oral or in writing, albeit the command of Section 21 of the Act is that the parties should apply to the court in writing for an order of reference. In the context of Section 21, the court can refer a dispute/difference subject matter of a suit when the parties mutually agree to arbitration. There must be a joining or meeting of minds between the parties to go for arbitration in respect of a subject matter in a pending suit. [Para 15][661-D-G; 662-A]
1.2 Arbitration is an alternative to the court adjudication process by a private forum chosen by the parties. Normally reference can be made or even directed to the arbitrator only if a pre-existing arbitration agreement subsists between the parties. In the absence of a pre-existing arbitration agreement, the court has no power, authority or jurisdiction to refer unwilling parties to arbitration. Therefore, the word ‘agree’ in Section 21 of the Act refers to consensus ad idem between the parties who take a considered decision to forego their right of adjudication before a court where the suit is pending, and mutually agree to have the subject matter of the suit or part thereof adjudicated and decided by an arbitrator. [Para 17][663-G-H; 664-A-B]
1.3 In the instant case, the application dated 23.12.1994 was moved by the plaintiff and it was not signed by the defendant. As per the heading, the application was for the appointment of a commissioner/arbitrator to conduct an ‘enquiry’ in respect of the accounts by a competent Chartered Accountant who shall act as a panch/Commissioner and submit a report after conducting an audit of the accounts. It was stated that the transactions between the parties are fairly large in number and, therefore, it is necessary to handover the said task to a Chartered Accountant. The application also states that for the enquiry regarding accounts an opportunity of hearing should be given to both the parties. Name of SKM, Chartered Accountant, to act as panch/commissioner was proposed. The prayer in the application was that the panch/commissioner would submit the report to the court after conducting an audit of the accounts. The application cannot be read as an application moved on a prior agreement or consensus for reference to arbitration. The application cannot be read as an application by the parties under Section 21 of the Arbitration Act. First, it is not an application for reference of disputes to an arbitrator for adjudication but a request for the appointment of an expert, that is, a Chartered Accountant, who would examine the accounts and papers and submit the report to facilitate the court. The role assigned to SKM is also clear from the letter of appointment which states that SKM has been appointed as CA and would be conducting an audit of all disputed accounts of both sides, and that he should send a report to the court. Secondly, the court’s jurisdiction to finally decide was not questioned or annihilated. In fact, the court always remained in the picture, exercised parley as an adjudicator having dominion over the subject matter of the suit. [Paras 18 and 19][664-E-G; 665-A]
1.4 The first portion of the order dated 23.12.1994 records that the plaintiff has made an application for settlement of accounts and that the accounts can be examined only by a well-educated Chartered Accountant. A copy of the application had been handed over to the counsel for the defendant who had no objection “to being appointed as Panch in this case”. This statement is somewhat vague, but cannot be read as as an indication or affirmation that the defendant had agreed to the appointment of an arbitrator as an alternative and substitute to court adjudication. If it was so, this should have been clearly stated to enable the parties to respond and make statement. At best it was restricted to the appointment of an expert/commissioner who would examine the accounts and submit his report. The second portion of the order dated 23.12.1994 states that in the application name of SKM, Chartered Accountant, as panch was proposed to which no party had any objection. Thereafter, the order records the direction of the court that the fee of the arbitrator ‘would be as prescribed in the schedule of the Arbitration Council of India and if the arbitrator demands a fee the same should be equally shared by both the parties’. The last portion does not incorporate and does not refer to any agreement or even concession given by the defendant agreeing to arbitration as an alternative to court adjudication and decision. The court had not disposed of the suit by referring the subject matter or a part of the subject matter of the suit to arbitration. The said order is for issuing a commission as the court had accepted an application filed by the plaintiff for verification of the accounts. The commissioner was to act as an expert or facilitator for the court and submit a report to the court to help the court adjudicate and finally decide the suit. [Paras 20 and 21][665-B-G]
1.5 There is also a distinction between the scope and functions of an arbitral tribunal and a commissioner appointed under Order XXVI Rules 9 and 11 of the Code. For submission to arbitration, there must be an arbitration agreement or an agreement in terms of Section 21 of the Act that the difference or dispute between the parties for which they intend to be determined in a quasi-judicial manner. Commissioners are appointed by the court. Appointment may be with consent of the parties, or even when there is objection to the appointment. Preexisting agreement or the requirement that the parties agree before the court, as is mandatory in case of arbitration, is not necessary when a court directs appointment of a commissioner. In the case of a reference to a commissioner, all that the parties expect from the commissioner is a valuation/ examination of the subject matter referred, which he would do according to his skill, knowledge and experience, which may be without taking any evidence or hearing argument. The principle of a ‘facilitator’ can be introduced, which a court may appoint, be it a commissioner or an expert, for a specific purpose and cause for ascertainment of a fact which may be even disputed. In some cases, the commissioner may even hear the parties and give his expert opinion based on the material or evidence produced by the parties before the commissioner, as in this case when the court appointed a Chartered Accountand who as an expert was required to give his opinion on the statement on accounts to facilitate and help the court arrive at a fair and just decision. It was to save the court’s time and cut delay in the decision by the court. [Para 32][670-F-G; 671-A-E]
1.6 Order XXVI Rule 9 of the Code gives wide powers to the court to appoint a commissioner to make local investigations which may be requisite or proper for elucidating any matter in dispute, ascertaining the market value of any property, account of mesne profit or damages or annual net profits. Under Order XXVI Rule 11, the court has the power to issue a commission in a suit, in which examination of adjustment of accounts is necessary, to a person as it thinks fit directing him to make such examination or adjustment. When a court issues such a commission to such a person, it can direct the commissioner to make such an investigation, examination and adjustment and submit a report thereon to the court. The commissioner so appointed does not strictly perform a ‘judicial act which is binding’ but only a ‘ministerial act’. Nothing is left to the commissioner’s discretion, and there is no occasion to use his judgment or permitting the commissioner to adjudicate and decide the issue involved; the commissioner’s report is only an opinion or noting, as the case may be with the details and/or statement to the court the actual state of affairs. Such a report does not automatically form part of the court’s opinion, as the court has the power to confirm, vary or set aside the report or in a given case issue a new commission. Hence, there is neither abdication nor delegation of the powers of functions of the court to decide the issue. Sometimes, on examination of the commissioner, the report forms part of the record and evidence. The parties can contest an expert opinion/commissioner’s report, and the court, after hearing objections, can determine whether or not it should rely upon such an expert opinion/commissioner’s report. Even if the court relies upon the same, it will merely aid and not bind the court. In strict sense, the commissioners’ reports are ‘nonadjudicatory in nature’, and the courts adjudicate upon the rights of the parties. [Para 33][671-E-F; 672-A-E]
1.7 The matter referred to SKM was limited to examination of the accounts. The issues and questions of dispute in the suit were far broader and wider. These included questions as to the agreed price or the rate of transportation , computation of the transportation costs payable to the plaintiff under the contract in case the coal delivered was within or beyond the 1% stipulation, whether or not the defendants were right in making deductions on account of bad quality coal, higher moisture content etc. whereby the weight of the coal had increased, delay in delivery on the part of the plaintiff, whether the defendants are entitled to charge interest while making recoveries, etc. SKM himself did not decide whether or not the plaintiff is entitled to rent of the plot or security charges observing that this was an aspect for the court to decide. However, he forgot that his ‘jurisdiction’ was limited to checking and verifying accounts and not deciding any issue or questions beyond the accounts. [Para 35][673-C-E]
1.8 The impugned order of the High Court affirming the order passed by the Additional District Judge is set aside. It is held that the report of the Chartered Accountant is not an award and is to be treated as a report of a commissioner appointed by the Court under Order XXVI Rule 11 of the Code. [Para 36][673F-G] Firm Khetu Ram Bashamber Dass v. Kashmiri Lal (1959) SCC OnLine Punj 102; Kerala State Electricity Board and Another v. Kurien E. Kalathil and Another (2018)
4 SCC 793 : [2018] 11 SCR 511; Afcons Infrastructure Ltd. v. Cherian Varkey Construction Co. (P) Ltd. (2010)
8 SCC 24 : [2010] 8 SCR 1053; Shailesh Dhairyawan v. Mohan Balkrishna Lulla (2016) 3 SCC 619 : [2015]
12 SCR 70; Byram Pestonji Gariwala v. Union Bank of India (1992) 1 SCC 31 : [1991] 1 Suppl. SCR 187; Bihar State Mineral Development Corpn. v. Encon Builders (I) (P) Ltd. (2003) 7 SCC 418 : [2003] 2 Suppl. SCR 812; ITC Ltd. v. George Joseph Fernadez and Another (1989) 2 SCC 1 : [1989] 1 SCR 469; K.K. Modi v. K.N. Modi and Others (1998) 3 SCC 573 : [1998] 1 SCR 601; Bharat Bhushan Bansal v. U.P. Small Industries Corporation Ltd. (1999) 2 SCC 166 : [1999]
1 SCR 181; Dayal Singh and Others v. State of
Uttaranchal (2012) 8 SCC 263 : [2012] 10 SCR 157; Murari Lal v. State of M.P. (1980) 1 SCC 704 : [1980]
2 SCR 249; Nagarajan v. A. Madhanakumar (1996) SCC OnLine Mad 17 – referred to.
Felthouse v. Bindley (1862) 142 ER 1037; Davis v. Edinburgh Magistrate 1953 SC 34 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.