Patna High Court
Gouri Shankar Prasad Sinha vs The State Of Bihar on 22 December, 1972
Equivalent citations: AIR1973PAT405, AIR 1973 PATNA 405, 1973 PATLJR 65, ILR (1973) 52 PAT 447, 1974 BLJR 730
JUDGMENT
1. This second appeal by the plaintiff is directed against the judgment and decree of the lower appellate Court dismissing the suit mainly on the ground that it was not maintainable. The trial Court had held that the suit was maintainable and decreed it.
2. The appellant is a contractor and admittedly he constructed a quarter for an Assistant Sub-Inspector of Police attached to Harsidhi Police Station District Champaran. for which he had entered into an agreement with the respondent the State of Bihar. The agreement was in Form F (2) and contained the terms and conditions of the contract and the extent and nature of work and the rates. According to the case of the appellant he completed the construction of the said quarter according to the specifications under the terms of the contract and after completing it made it over to the official of the respondent on 15th of July. 1957. The officials of the Public Works Department of the respondent, however, dishonestly began to find fault with the construction. Then the appellant required the Executive Engineer to refer the case to the Superintending Engineer for arbitration of his claims. The appellant admitted that the Superintending Engineer made an award but that according to him was haphazard and thus vitiated, perverse and unjust. Having failed in his attempt to pursue the Executive Engineer to finalise his accounts and make payment he instituted the suit for accounts.
3. The defence of the respondent was that the appellant did not complete the work within time and had to be granted extension. He did not make over the building to the officials of the respondent on 15th of July, 1957 as claimed by him. The construction of the quarter was not according to the specification. As he had used defective mate-
rials and of inferior quality the defects had to be rectified and the appellant was liable to compensate the respondent for that. The appellant also signed the final bill in token of the acceptance of the accounts. It was lastly pleaded that the award of the Superintending Engineer was binding on the appellant as per terms of the contract and the suit was not maintainable. It was stated in the written statement that on account of rectification of the defects the appellant was liable to pay a sum of Rs. 1,363.77 to the respondent and after deducting that amount he was entitled to get only a sum of Rs. 284.25.
4. The appeal was first placed for hearing before a learned single Judge who has referred it to a Division Bench. Mr. Md. Khaleel appearing for the appellant has contended that the Court of appeal below has erred in holding that the suit was not maintainable. According to him as the award of the Superintending Engineer was not made a rule of the Court it should be treated as nonexistent and the respondent should not be allowed to plead that award as a bar to the maintainability of the suit. He has further submitted that the arbitration agreement in the contract has merged in the award and that too cannot be pleaded as a bar to the maintainability of the suit. Otherwise also he contends that an arbitration agreement is not a bar to the institution of an action. The only remedy open to the respondent was to get the suit stayed under Section 34 of the Arbitration Act (hereinafter referred to as the Act) and having not availed of that remedy and having submitted to the jurisdiction of the Court by filing written statement the respondent could not and cannot raise the plea that the arbitration agreement was a bar to the maintainability of the suit. In support of his contentions he has placed reliance on the decisions in Seonarain Lal v. Prabhu Chand, AIR 1958 Pat 252 (FB); Sait Faman-dass Sugnaram v. T. S. Manikyam Pillai, AIR 1960 Andh Pra 59 (FB) and O. Moha-med Yusuf Levai Saheb v. S. Hajee Mohammed Hussain Rowther, AIR 1964 Mad 1 (FB). These decisions no doubt to some extent support his contention. In Seonarain Lal's case it was held that an award is not effective unless a decree follows the judgment upon it. In Sait Pamandass Sugnaram's case it was observed.
"No party can be prejudiced by the mere existence of an award. It does not become operative and enforceable until it has been filed in Court and the Court adjudicates about its validity."
It was further observed.
"There can be no doubt that under the law prior to the passing of the Arbi-
tration Act. 1940 a valid award operated to extinguish all claims, which were the subject-matter of the reference to arbitration and the award alone furnished the basis by which the rights of the parties could be determined and any action on the original cause of action was barred. The Arbitration Act of 1940 effected a change in that, it prescribed the procedure for getting an award enforceable. The effect of this change was that the passing of the award by itself did not extinguish the rights of the parties until such award was subjected to the process mentioned in the Act."
It was further held in that case that it was not open to the defendant to set up an award as a bar to the suit filed on the original cause of action where the award had not been filed and all proceedings relating thereto had not been gone through as required by the Arbitration Act. In Mohamed Yusufs case also it was held by the Full Bench of the Madras High Court that where an award is made on a reference out of Court and has not been filed into Court in accordance with the provisions of the Abritration Act, 1940. it cannot ordinarily be pleaded as a defence of the original cause of action.
5. The aforesaid decisions, however, now stand overruled by the decision of the Supreme Court in Satish Kumar v. Surinder Kumar, AIR 1970 SC 833. The decision of this Court in Seonarain Lal's case was expressly overruled. The other two decisions have not been referred to in the decision but they also stand impliedly overruled. His Lordship Sikri. J. fas he then was) who delivered the main judgment quoted from another judgment of the Supreme Court in Uttam Singh Dugal and Co. v. Union of India, (Civil Appeal No. 162 of 1962. D/- 11-10-1962 (SC)) the following passage :
"The true legal position in regard to the effect of an award is not in dispute. It is well settled that as a general rule, all claims which are the subject-matter of a reference to arbitration merge in the award which is pronounced in the proceedings before the arbitrator and that after an award has been pronounced, the rights and liabilities of the parties in respect of the said claims can be determined only on the basis of the said award. After an award is pronounced, no action can be started on the original claim which had been the subject-matter of the reference. As has been observed by Mookerjee, J. in the case of Bhajahari Saha Banikya v. Behary Lal Basak. (1909) ILR 33 Cal 881 at p. 898, the award is, in fact, a final adjudication of a Court of the parties own choice, and until impeached upon sufficient grounds in an appropriate proceeding, an award, which is on the face of it regular, is conclusive upon the merits of the controversy submitted, unless possibly the parties have intended that the award shall not be final and conclusive ..... in reality, an award possesses all the elements of vitality even though it has not been formally enforced and it may be relied upon in a litigation between the parties relating to the same subject-matter. This conclusion according to the learned Judge, is based upon the elementary principle that, as between the parties and their privies, an award is entitled to that respect which is due to judgment of a Court of last resort. Therefore, if the award which has been pronounced between the parties has in fact, or can, in law. be deemed to have dealt with the present dispute, the second reference would be incompetent. This position also has not been and cannot be seriously disputed."
After examining other decisions of the Supreme Court and of other High Courts this Lordship referred to Para 7 of Schedule I to the Act which says that the award shall be final and binding on the parties and persons claiming under them respectively and then observed :
"If the award is final and binding on the parties it can hardly be said that it is a waste paper unless it is made a rule of the Court."
His Lordship further observed :
"We are unable to appreciate why the conferment of exclusive jurisdiction on a Court under the Act makes an award any the less binding than it was under the provisions of the Second Schedule of the Code of Civil Procedure."
From the above quoted observations it would appear that the Act has not brought about any change in the law which existed before its passing in the year 1940 and that a valid award operates to extinguish all claims which were the subject-matter of the reference to arbitration and the award alone furnishes the basis by which the rights of the parties can be determined and any action on the original cause of action is barred. As held in the case of Bhajahari Saha Banikya, ILR 33 Cal 881. which has been approved by the Supreme Court in the above quoted passage from the case of Uttam Singh Dugal and Company the award is a final adjudication of a Court of the parties own choice and until impeached upon sufficient ground in an appropriate proceeding is conclusive upon the merits of the controversy submitted and it possesses all the elements of vitality even though it has not been formally enforced and it may be relied upon in a litigation between the parties relating to the same subject-matter. It lias been held by their Lord-
ships of the Supreme Court In the case of Messrs Uttam Singh Dugal and Company that as between the parties and their privies, an award is entitled to that respect which is due to judgment of a1 Court of last resort. In our opinion, therefore, the Court of appeal below has rightly held that the suit was not maintainable.
6. Mr. Md. Khaleel has argued that reference to the Superintending Engineer was not in respect of all the items of dispute and, therefore, the suit should be held to be maintainable at least with reference to those items which were not referred to him. In this connection he has drawn our attention to the finding of the trial Court that the question as to what amount was spent by the respondent on rectification of the defects in the building was not referred to the arbitrator. Really it is not the case of the appellant that the respondent was entitled to deduct any amount from his bills on account of rectification of the defects. It appears that it was also not the case of the respondent before the arbitrator. This plea, it appears was not taken before the arbitrator but it has been taken only as a defence in the present suit. It cannot, therefore, be said that really there was a dispute on this question between the parties at the time the reference, was made. If a dispute has arisen between the parties subsequently on this question and that can be legally referred to the Superintending Engineer again then the previous award will be no bar to another award on this question. In our opinion the suit cannot be held maintainable on account of this fact. Really, learned counsel for the appellant has not been able to convince us that the suit was in respect of claims which were not referred for arbitration. The appellant cannot get a decree on the basis of the defence of the respondent.
7. A qusetion also arises as to whether a decree can be passed in favour of the appellant for the amount which has been admitted by the respondent as payable to him. In our opinion no decree need be passed for that amount in this suit as the suit of the appellant is only for accounts. nO specific amount has been claimed in the suit nor any court-fee paid for such claim. If he is now allowed to pay court-fee on the amount admittedly due to him and a decree passed in his favour, then he may not get the entire amount held due to him in the award. The appellant may not get a decree from a Court on the basis of the award of the Superintending Engineer as an application for the purpose may be barred by limitation, but as the other party is the State we are confident that the legitimate payment to the appellant will not be denied on the ground of limitation.
8. In the result the appeal fails and is dismissed but in the circumstances of the case there will be no order as to costs so far as this Court is concerned.