The court has inherent jurisdiction to set aside an award suo motu under Sections 17 and 30 of the Arbitration Act, but this jurisdiction will be exercised only in rare cases where the award is patently illegal and void.

Headnote:
ARBITRATION - AWARD - JURISDICTION OF COURT - COURT'S POWER TO SET ASIDE AWARD SUO MOTU - SCOPE AND LIMITATIONS - INTERPRETATION OF SECTIONS 16, 17, 30 AND 33 OF THE ARBITRATION ACT, 1940.
Fact of the Case:

Dispute over the nature of an agreement between the plaintiff and defendants regarding the transfer of a property. Arbitrator directed defendants to pay plaintiff a certain amount and interest, and if they failed, plaintiff could recover the amount by sale of the mortgaged property. Defendants challenged the award, arguing that the arbitrator exceeded his jurisdiction by passing a virtual decree on the mortgage.
Finding of the Court:

The court held that the arbitrator did not exceed his jurisdiction and that the award was valid. The court also held that it had inherent jurisdiction to set aside an award suo motu under Sections 17 and 30 of the Arbitration Act, but that this jurisdiction would be exercised only in rare cases where the award was patently illegal and void.
Issues: 1. Whether the arbitrator exceeded his jurisdiction in passing a virtual decree on the mortgage? 2. Whether the court had jurisdiction to set aside the award suo motu?
Ratio Decidendi: 1. The court interpreted the terms of reference agreed upon between the parties and found that the arbitrator had not exceeded his jurisdiction in directing the defendants to pay the plaintiff a certain amount and interest, and if they failed, plaintiff could recover the amount by sale of the mortgaged property. 2. The court held that it had inherent jurisdiction to set aside an award suo motu under Sections 17 and 30 of the Arbitration Act, but that this jurisdiction would be exercised only in rare cases where the award was patently illegal and void. The court reasoned that this jurisdiction was necessary to prevent the enforcement of awards that were contrary to public policy or that violated the fundamental rights of the parties.
Final Decision: The court dismissed the appeal from order and the revisional application, holding that they were both incompetent.

JUDGMENT - Gajendragadkar, J.

1. This appeal from order and revisional application have been filed by the defendants against orders passed by the learned Civil Judge, Senior Division, Ahmednagar, in suit No. 60 of 1948. It appears that there was an agreement between the plaintiff and the defendants in regard to the transfer of house No. 2665 at Ahmednagar. A dispute arose between the parties as to the nature of this agreement. The plaintiff alleged that it was an agreement to sell the property, whereas according to the defendants they had merely agreed to mortgage the property. This dispute was referred by the parties to arbitration on January 25, 1948. The arbitrator then made his award.

He was of the opinion that the agreement between the parties was one of mortgage and not of sale and on that footing the award purports to direct defendants Nos. 1 to 3 to pay the plaintiff Rs. 8,500 and interest at the rate mentioned in the award. This amount was made payable by six monthly instalments of Rs. 1,000 each. The award then goes on to direct that if defendants Nos. 1 to 3 did not pay the amount to the plaintiff as directed, the plaintiff should proceed to recover that amount by sale of the property mortgaged through Court. If the sale-proceeds were not enough to pay the plaintiff the amount due to him, the plaintiff should proceed to recover the balance from the other properties of defendants Nos. 1 to 3. The award also provides for a default clause, but it is unnecessary to refer to this clause in detail.

After the award was thus made, it was filed in Court and notice was served to the parties under Section 14(2) of the Arbitration Act. On June 15, 1949, the defendants were served. On October 27, 1949, they filed their written statement, in which they raised several contentions. The principal contention with which we are concerned in the present appeal was that the arbitrator had no jurisdiction to pass a virtual decree on the mortgage as he has purported to do. The defendants argument was that the parties had referred to the arbitrator the decision of the dispute as to whether the transfer of the defendants properties should take the form of a sale or mortgage and nothing more.

It was wholly outside his jurisdiction to direct not only that the mortgage deed should be executed by the defendants in favour of the plaintiff but that in certain contingencies the plaintiff would execute the award itself and recover the amount by sale of the mortgaged properties. The defendants, therefore, claimed that the award should be set aside. The learned Judge was not impressed with this plea; he held that the reference made to the arbitrator included the power to pass an award on a mortgage, if the arbitrator held that the agreement between the parties was to have a deed of mortgage by the defendants for the amount received by them; so he directed that a decree in terms of the award should be drawn.

In the course of his judgment the learned Judge has observed that he saw no reason to set aside the award, though the final order merely directed that the award is ordered to be filed and that the decree in terms of the award should be drawn up. Treating this judgment as amounting to an order refusing to set aside the award, an appeal from order has been preferred by the defendants. In the alternative, against the decree which was subsequently drawn in terms of the award a revisional application has been preferred by them. That, in short, is the genesis of the two matters which have come before us for decision to-day.

2. It has come to our notice in several cases that though the Arbitration Act was passed in 1940, Courts below do not seem to take judicial notice of the change which has been effected by the passing of this Act. Very often when awards are filed, proceedings are taken pursuant thereto as though the provisions of Schedule II to the Civil Procedure Code were still in force. In the present case the learned Judge has virtually adopted the same

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