1. Suit for settlement of accounts — Application for appointment of Chartered Accountant to audit records — Dispute over whether appointment constitutes reference to arbitration under Section 21, Arbitration Act, 1940. (Para 1 , 2 , 3 , 4 , 5 , 6 , 7 , 8 , 9 , 10 , 11 )
Back
Next 
2022 Supreme(SC) 443
SUPREME COURT OF INDIA
SANJIV KHANNA, BELA M. TRIVEDI, JJ.
M.P. Rajya Tilhan Utpadak Sahakari Sangh Maryadit, Pachama, District Sehore And Others – Appellants
Versus
M/S. Modi Transport Service – Respondent
Civil Appeal No. 1973 of 2022
Decided on : 11-05-2022
Advocates Appeared:
For the Appellant :Ankita Choudhary, Himanshi Shakya, Sunny Choudhary, Abhinav Shrivastava, Abhimanyu Singh, Advocates
For the Respondent:Pragya Baghel, Advocate
For the Appellant :Ankita Choudhary, Himanshi Shakya, Sunny Choudhary, Abhinav Shrivastava, Abhimanyu Singh, Advocates
For the Respondent:Pragya Baghel, Advocate
IMPORTANT POINTS
(1) Reference to arbitration – In absence of a pre-existing arbitration agreement, Court has no power, authority or jurisdiction to refer unwilling parties to arbitration.
(2) Advocate Commissioner’s report is only an opinion or noting, as the case may be with details and/or statement to court actual state of affairs – Such a report does not automatically form part of court’s opinion.
Headnote:
(A) Arbitration Act, 1940 – Section 21 – Reference to arbitration – Normally, reference can be made or even directed to Arbitrator only if a pre-existing arbitration agreement subsists between parties – In absence of a pre-existing arbitration agreement, Court has no power, authority or jurisdiction to refer unwilling parties to arbitration – There must be meeting of minds between parties to go for arbitration – Subject matter of reference must be any of matters between parties to suit – Arbitration is an alternative to Court adjudication process by a private forum chosen by parties – Referring parties to arbitration has serious civil consequences, substantial and procedural – Once an award is passed, it can be only challenged on limited grounds. (Paras 15, 17 and 26)
(B) Civil Procedure Code, 1908 – Order XXVI Rule 9 – Specific Relief Act, 1963 – Section 14A – Appointment of Commissioner – There is distinction between scope and functions of an Arbitral Tribunal and a Commissioner appointed under Order XXVI Rules 9 and 11 of CPC – For submission to arbitration, there must be an arbitration agreement or an agreement in terms of Section 21 of Act that difference or dispute between parties for which they intend to be determined in a quasi-judicial manner – Commissioners are appointed by Court – Appointment may be with consent of parties, or even when there is objection to appointment – Pre-existing agreement or requirement that parties agree before Court, as is mandatory in case of arbitration, is not necessary when a Court directs appointment of a commissioner – Commissioner’s report is only an opinion or noting, as the case may be with details and/or statement to court actual state of affairs – Such a report does not automatically form part of court’s opinion, as court has power to confirm, vary or set aside report or in a given case issue a new commission – Parties can contest an expert opinion/commissioner’s report, and court, after hearing objections, can determine whether or not it should rely upon such an expert opinion/commissioner’s report – Even if court relies upon same, it will merely aid and not bind court – In strict sense, Commissioners’ reports are ‘non-adjudicatory in nature’ and courts adjudicate upon rights of parties – Report of Chartered Accountant is not an award and is to be treated as a report of a Commissioner appointed by Court under Order XXVI Rule 11 of CPC. (Paras 32, 33 and 36)
Facts of the case:
Legal issue arising in the present appeal is whether parties had agreed that the subject matter of the suit or a part thereof should be referred to arbitration under Section 21 of Arbitration Act, 1940.
Findings of Court:
Opinion or report of expert would form part of the record of the suit as is the case with Commissioner’s report. With the court's permission, the parties to the suit may examine the expert personally in the open court on any of the matters referred to him or as to his opinion or report or as to the manner in which he has made the inspection.
Result : Appeal allowed.
Legal Category Hierarchy
Table of Contents
2. Whether the appointment of a Chartered Accountant as a panch constitutes a reference to arbitration under Section 21, Arbitration Act, 1940, or a commission under Order XXVI, CPC. (Para 12 , 13 )
3. Reference to arbitration requires mutual agreement in writing by all parties to forego court adjudication; appointment of an expert to audit accounts is a ministerial act assisting the court. (Para 15 , 16 , 17 , 18 , 19 , 20 , 21 , 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31 , 32 , 33 , 34 , 35 )
4. Reference under Section 21, Arbitration Act, 1940, requires consensus ad idem and a written application by all interested parties to substitute court adjudication with arbitration. (Para 15 , 17 )
5. Appeal allowed — Impugned order set aside — Report of Chartered Accountant held to be a commissioner's report under Order XXVI Rule 11, CPC, not an arbitral award. (Para 36 , 37 )
6. What are the essential requirements for referring a pending suit to arbitration under Section 21 of the Arbitration Act, 1940?
All interested parties must mutually agree to refer the matter to arbitration and apply to the court in writing. There must be a meeting of minds to forego court adjudication in favor of a private forum. (Para 15 , 16 , 17 )
7. What is the legal distinction between an arbitrator and an expert or commissioner appointed by the court?
An arbitrator performs a judicial act to determine substantive rights in a binding manner. An expert or commissioner performs a ministerial act, providing an opinion or report to assist the court in arriving at a decision without binding the court. (Para 28 , 29 , 30 , 31 , 32 , 33 )
8. Is the report submitted by a court-appointed commissioner or expert binding on the court?
No, a commissioner's report is non-adjudicatory and serves as an opinion to facilitate the court. The court can confirm, vary, or set aside the report after hearing objections. (Para 31 , 33 )
9. Can a legal counsel provide consent for arbitration on behalf of a party without specific written authority?
Counsel should not act on implied authority for arbitration unless there is an exigency demanding immediate adjustment and the party's signature cannot be obtained without undue delay. (Para 25 )
JUDGMENT :
Sanjiv Khanna, J.
The legal issue arising in the present appeal is whether the parties had agreed that the subject matter of the suit or a part thereof should be referred to arbitration under Section 21 of the Arbitration Act, 1940.1[We are examining the provisions of the Arbitration Act, 1940 and consequently, the observations and the findings recorded should not be without proper appreciation of the principles applied to the proceedings under the Arbitration and Conciliation Act, 1996.]
2. On 03rd September 1993, the respondent before us - M/s. Modi Transport Service, 2[The plaintiff', for short.] a partnership firm, had filed a civil suit in the Court of the District Judge, Sehore Camp, Astha, Madhya Pradesh, for the settlement of accounts of transportation of coal undertaken by them according to the agreement dated 01st October 1990 and the supplementary agreement dated 13th December 1991, with M.P. Rajya Tilhan Utpadak Sahkari Sangh Maryadit, Pachama, District Sehore, Madhya Pradesh (the first defendant). The General Manager and Managing Director of the said Sahkari Sangh were impleaded as second and third defendants. 3[Collectively three defendants are referred to as 'the defendant', for short.] The plaintiff had also prayed for a grant of the amount due and payable by the defendant and the amount spent by the plaintiff on the security of the defendant's goods and all other amounts (sic) with interest @ 2%.4[Interest period was not specified.]
3. The plaint, in brief, states that the plaintiff had transported coal on the delivery orders issued by the defendant from the coal mines to the defendant's plant. The plaintiff had no connection with the quality or any deficiency in the quality of the coal. The plaintiff, as per directions, had loaded the coal from the coal mines of Western India Coalfields Limited. The plaintiff's sole responsibility was to deliver the coal on time at the defendant's plant. By communication dated 05th June 1992, the defendant had informed that the plaintiff would be paid transportation charges at Rs. 1.42p. per tonne per kilometre till the finalisation of the new agreement. The order would remain in force for at least six months. The plaintiff, as required, had furnished a bank guarantee of Rs. 1,00,000/- (rupees one lakh only) for six months. Thereafter, the defendant had refused to pay transportation charges @ Rs. 1.42p. per tonne per kilometre. Further, the defendant had made deductions from the bills raised on the basis of the actual tonnage of coal delivered, though the plaintiff, as per the agreement, was entitled to a 1% variation or exemption on the quantum of coal loaded at the coal mine. Accordingly, transport charges were payable per ton per kilometre as loaded at the collieries and not on the quantity actually delivered as long as the shortfall was within 1%. The defendant had also made false and wrong deductions on account of the high moisture content in the coal. Interest was charged and deducted from the bills of the plaintiff by the defendant. Subsequently, the defendant had issued a telegraph asking the plaintiff not to transport coal. The plaintiff had to arrange for a plot to store the coal for which he had to pay a rent of Rs. 10,000/- (rupees ten thousand only) per month and incur security expenses of Rs. 5,000/- (rupees five thousand only) per month for up to five months.
4. The defendant contested the suit by filing a detailed written statement. As per the defendant, it was an essential duty of the plaintiff to lift the coal offered only on being satisfied that the coal was of good quality. The plaintiff had lifted good quality coal from the collieries against the release orders of the defendant, but low quality of coal was delivered to the defendant. The defendant was cheated. The representatives of the plaintiff were informed about the low quality of coal on account of excessive moisture, and stone and dust being mixed with the coal. The truck drivers had showered
