Abdul Kadir Shamsuddin Bubere vs Madhav Prabhakar Oak

Supreme Court20 September 1961K.N. Wanchoo · K.C. Das Gupta · J.C. Shah

Neutral1961 INSC 269
AIRAIR 1962 SC 406
SCR[1962] 3 SCR 702

Ratio decidendi

The rule this decision rests on

Where a party to an arbitration agreement known that another person held an interest in the subject matter of the dispute and agreed to arbitration with other parties despite that knowledge, the court will send the parties to their chosen forum even if the third party cannot be made a participant before the arbitrator, provided the third party's share in the subject matter is not itself in dispute. The arbitrator may decide the dispute between the parties before him, leaving the undisputed share of the absent party out of the award. An allegation made in connection with accounts—such as that they were not kept up to date, were incomplete, contained exaggerated or incorrect items, or that there was suspicion of possible future misappropriation—does not amount to a serious allegation of fraud that would justify a court in refusing to order an arbitration agreement to be filed and in refusing to make a reference. Not every allegation imputing dishonesty or moral misconduct in the keeping of accounts will prevent referral; only serious allegations of fraud that the party charged desires to have tried in open court will justify such refusal. A reference to arbitration of disputes arising from multiple successive agreements between the parties is not piecemeal or destructive of the cause of action where the successive agreements are supplementary or confirmatory of an earlier principal agreement and where the arbitration clause covers disputes arising out of all of them; an arbitrator considering the dispute will necessarily have regard to all such related agreements. The wide language of an arbitration clause covering disputes arising from multiple named agreements and "in any other way" is not narrowed or limited by introductory words in the agreement stating that it is made "without prejudice to" certain earlier contentions or reservations; those words merely preserve the right to raise the earlier contentions for the arbitrator's decision and do not confine the agreement to disputes arising only from particular agreements.

Written by Miss Lucy from the judgment below, not taken from a headnote.

Judgment

As delivered

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 305 of 1958.Appeal from the judgment and decree dated April 14/15,1955of the Bombay High Court in Appeal from Order No. 28 of1955.S. B. Sukhthankar, S. N. Andley, Rameshwar Nath and P. L.Vohra, for the appellant.A. V. Viswanatha Sastri and Ganpat Rai, for therespondents.7041961. September 20. The Judgment of the Court wasdelivered byWANCHOO, J. This is an appeal on a certificate granted bythe Bombay High Court. An application was filed under s. 20of the Arbitration Act, No. X of 1940. (hereinafter referredto as the Act) by the two respondents against the appellantpraying that the arbitration agreement dated February 27,1953 may be filed in court, arbitration be made accordingly,and thereafter a decree in terms of the award made by thearbitrator be passed.The circumstances in which the application was made werethese. There is a forest in village Done, which belonged tothree persons, namely, Madhav Prabhakar Oak, respondent No.1, (hereinafter referred to as Oak), Babaji Chandrarao Rane,uncle of the second respondent (hereinafter referred to asBabaji), Gajanan Babaji Rane (hereinafter called Gajanan).Oka had six annas share in the forest, Babaji eight annasshare and Gajanan two annas share. It may be mentioned thatGajanan's share was purchased by the appellant in November1944. On October 22, 1948, a partnership agreement wasarrived at between Babaji, Oak and the appellant for cuttingthe forest. The value of the forest for the three ownerswas fixed at Rs. 60,000/which was to be divided amongst themaccording to their shares. The work of cutting was to bedone by the appellant who appears to be an experiencedforest contractor. Any income over and above theexpenditure incurred in the cutting and the value of theforest was to be divided equally amongst the three partners;if there was any loss that was also to be borne equally bythem. It appears,. however, that nothing was done inpursuance of this agreement, apparently because a suit hadbeen filed by two persons with whom there was an earlieragreement of 1939 about the cutting of this very forest. Itappears also that in March 1951 Gajanan and the appellantexecuted another705document in which the price of Gajanan's share to be paid bythe appellant was raised. In May 1951 Babaji died.Consequently in May 1952 another agreement was executedbetween the appellant and the heirs of Babaji, namely, AnantYeshwant Rane respondent No. 2 (hereinafter referred to asAnant), Ambikabai, widow of Babaji, Gajanan and his motherDevubai and Oak. This agreement referred to the earlieragreement of 1948 and was obviously necessitated on accountof the death of Babaji. It confirmed that agreement andstated that it was drawn up because of the necessity ofAnant, Ambikabai and Devubai being made parties to thesettlement in the agreement of 1948. The consideration ofRs. 60,000/- was divided between the owners, and Rs 51,000/-was to go to Oak, Anant and Ambikabai and the restrepresented the price for which the appellant had purchasedthe share of Gajanan and his mother Devubai. Nothing seemsto have been done in pursuance of this agreement either. InOctober 1952, another agreement was entered into between theappellant the two respondents and one Khan Bahadur Divkar bywhich the cutting of the forest was assigned to Divkar for asum of Rs. 1,00,000/-. This amount was to be dividedbetween the appellant and the respondents; Anant was to getRs. 44,800/-, Oak Rs. 35,700/- and the appellant Rs.19,500/-. Divkar was unable to carry out his part of thisagreement. Eventually on February 27, 1953, an agreementwas entered into between the appellant and the tworespondents as Divkar had not carried out his agreement. Itwas agreed between the parties that the dispute with Divkarbe got decided and the forest be cut in accordance with theagreements of October 22, 1948 and May 5, 1952. Theoperative part of this agreement also contained a term forarbitration in al. 6(4), which in these terms:--"Should there be a dispute between the parties inconnection with this agreement or in connection with theagreements706dated 22.10.1948 and 5.5.1952 or regarding Khan BahadurDivkar's money or the jungle cutting or export or inany other way, the same should be got decided inaccordance with the current law by appointing arbitratorsand through them."It appears that thereafter the forest was cut by theappellant ; but disputes appear to have arisen between theparties to the last agreement of 1953; consequentlyrespondents Nos. 1 and 2 filed the application under s. 20of the Act in August 1954.The case put forward by the respondents in the applicationwas that the appellant, though he carried on the work ofcutting the forest, did not carry out the terms of theagreement of 1953 and showed the statements of accountsintermittently to the respondents. It was alleged that theaccounts were not made up to date, and inspite of therespondents' demand that the accounts should be made up todate, the appellant did not do so. The respondents alsodemanded that the goods remaining to be sold should bedisposed of with the consent of all; but this was also notagreed to by the appellant. The statement of accounts shownto the respondent was not complete and correct. The wholestock of goods was not to be found in the statement ofaccounts and the debit items seemed to have been exaggeratedand were not correct; and consequently it was not possibleto carry on the business of partnership with the appellantand it was necessary to dissolve the partnership and takeaccounts of the partnership. It was also said that theappointment of a receiver had become necessary in order toprotect the interest of the respondents and that aninjunction should be granted restraining the appellant fromremoving the stock in balance so as to avoidmisappropriation thereof pending the appointment of areceiver. The respondents prayed that the agreement ofFebruary 1953 for referring the707dispute in connection with the agreements dated October 22,1948 and February 27, 1953 between them and the appellantshould be filed in court and necessary directions made bythe court.The application was opposed by the appellant. The agreementof February 27, 1953 was admitted by the appellant; but itwas contended that no reference should be made to thearbitrator and a number of grounds were urged in thatconnection.' It is not necessary for purposes of this appealto refer to all the grounds in reply to the application ofthe respondents. We shall only refer to those grounds whichhave been urged before us and they are as below :-(1) Ambikabai, widow of Babaji, admittedlyhad a share in the forest and as she was not aparty to the application there could be noreference to arbitration as the whole disputeas to the forest would not be before thearbitrators.(2) The respondents only desired in theirapplication that the disputes arising out ofthe agreements of October 22, 1948 andFebruary 27, 1953 be referred to arbitrationbut did not include the agreement of May 5,1952, and therefore no reference should bemade as it would be a piecemeal referenceresulting in splitting up the cause of action.(3) The dispute sought to be referred wasnot covered by the arbitration clause.(4) The respondents had made allegations offraud against the appellant in theirapplication and that was also a ground for notreferring the dispute to arbitration.It may be mentioned that the respondents later applied forthe appointment of a receiver, and that application wasallowed. Eventually, however, the trial court dismissed theapplication under s.20 on two main grounds namely, (1) thatall the708parties who were necessary in the, matter of accounting werenot parties to the application under s. 20, and (ii) thatthere were allegations of fraud against the appellant andtherefore this was not a fit case to be, referred toarbitration.This was followed by an appeal to the High Court by thepresent respondents. The High Court held that even thoughAmbikabai had a share in the forest and was not a party tothe application under a. 20 her interest was sufficientlyrepresented by Anant and therefore it could not be said thatall the parties interested in accounting would not be beforethe arbitrator. On the question of fraud, the High Courttook the view that the allegations made in this case werenot allegations of fraud at all and in any case were notsuch allegations of fraud as would make it incumbent on thecourt to exercise its discretion in favour of the appellantand refuse to refer the dispute to arbitration. An argumentwas also raised before the High Court that the appellant waschallenging the very existence of partnership between theparties and this question could not be referred toarbitration. The High Court, however, repelled thiscontention and held that the existence of the arbitrationagreement was never challenged by the appellant. It there-fore allowed the appeal and ordered that the arbitrationagreement be filed in court and consequent proceedings betaken thereafter. As the judgment was of reversal, theamount involved was more than Rs. 20,000/- and the order wasa final order, the High Court granted a certificate; andthat is how the matter has come up before us.Learned counsel for the appellant has urged four pointsbefore us, which we have already indicated earlier. Wepropose to deal with these points one by one.Re.(1). It is urged that Ambikabai admittedly has a share inthis forest and as she is no party to the, application unders. 20 no reference should be made, as the entire disputearising out of the709agreements of October 22, 1948 and May 5, 1952 would not bebefore the arbitrator. This argument found favour with thetrial court but the High Court repelled it holding thatAmbikabai's interest was sufficiently represented inarbitration proceedings by Anant. If that is so, therecould be no objection on this ground to the filing of thearbitration agreement ; but even if that is not so, we areof opinion that is no ground in the circumstances of thiscase for not referring the dispute to arbitration inaccordance with the arbitration clause in the agreement ofFebruary 27, 1953. Babaji had a brother Yeshwant and Anantis his son. It is not disputed that Babaji was holdingeight annas share in the forest on behalf of the jointfamily consisting of himself and his nephew Anant, and hispersonal share in it was half, i.e., four annas. On hisdeath his personal share would go to his widow Ambikabaiwhile Anant would have the remaining half Anant appears tobe the eldest male member of the family now alive.Therefore, in a sense the High Court was right in holdingthat Anant would represent the entire interest of the jointfamily which consisted of eight annas share in this forest.But even if this was not so because at one stage at any rateAmbikabai was also a party to the agreement of May 5, 1952,we can see no reason why the dispute as between theappellant and the respondents should not be referred toarbitration. The share of Ambikabai as we have alreadystated above is not in dispute. Ambikabai was not a partyto the agreement of February 27, 1953, though she was aparty to the agreement dated May 5, 1952. The appellant wasalso a party to the earlier agreement of May 1952 and knewthat Ambikabai had a share in this forest. Even so, heentered into the agreement of February 27, 1953, with thetwo respondents and agreed to the disputes between him andthe respondents being referred to arbitration. We fail tosee how he can now say that the disputes between him and the710respondents should not be referred to arbitration becauseAmbikabai was not a party to the agreement of February 1953.The reason why Ambikabai did not join in the applicationunder s.20 was that she was not a party to the agreement ofFebruary 1953 and could not therefore apply under s. 20; butthat is no reason why the dispute between the appellant andthe two respondents should not be referred to arbitration,particularly when there is no dispute as to the share ofAmbikabai in this forest. All that would happen would bethat the arbitrator would decide the dispute between theappellant and the respondents and give an award leaving outthe share of Ambikabai, the extent of which is not indispute. The matter might have been different if the shareof Ambikabai was in dispute; but as the share of Ambikabaiand its extent are not in dispute, the arbitrator can gointo accounts and give an award with respect to the partiesbefore him, leaving out the four annas share of Ambikabai.We see no reason why where parties entered into anarbitration agreement of this nature knowing fully well thatthere was another person who was interested but leaving herout, the court should not send the parties to the forumchosen by them, even if the other person who right beinterested and whose share is not in dispute cannot be madeparty before the arbitrator. We- are therefore of opinionthat even if Anant may not be able to represent the interestof Ambikabai in the arbitration proceedings that will followin this case, that is no reason for not giving effect to thearbitration clause in the agreement of February 27, 1953 asbetween the parties to that agreement The contentiontherefore of the appellant on this point must fail.Re.(2). It is true that in the application under s. 20 therespondents have asked for the agreement of February 27,1953 to be filed in court and the dispute in connection withthat agreement and the agreement of October 22, 1948 to bereferred to711arbitration, and have not specifically asked for referenceof the agreement of May 5, 1952, even though it was includedin the agreement of February 1953. But as alreadyindicated, the agreement of May 1952 is merely inconfirmation of the agreement of 1948 and when thearbitrator goes into the dispute between the parties he willnecessarily have to refer to the agreement of May 1952, sofar as it is relevant. The agreement of May 1952 had to beentered into because of the death of Babaji. It is merelysupplementary to the main agreement which is of October 22,1948. In the circumstances when the dispute is referred tothe arbitrator under the agreement of February 1953 withrespect to the agreement of October 1948, the arbitratorwill be entitled to look into the confirmatory agreement of1952, for the main agreement was that of October 1948. Weagree with the view of the trial court in this connectionthat the pleadings in muffasil courts cannot be consideredtoo strictly; even the trial court was prepared in case thematter should be referred to arbitrator to ask thearbitrator to consider also the agreement of May 1952. Theagreement of May 1952 would have to be considered by anyarbitrator who is going into the dispute arising out of theagreement of October 1948. In the circumstances we are ofopinion that it cannot be ,said that the reference desiredin this case is piecemeal and split up the case of action.The contention of the appellant on this score must alsofail.

Be,. (3). The contention under this head is that the dispute sought to be referred was not covered by the arbitration clause. We have already set out the arbitration clause and as we read it we find it is of very wide import. It provides for reference to arbitration of all disputes arising out of agreements of October 22, 1948, May 5,1952 and February 27, 1953. It also provides for reference of all disputes arising out of the jungle 712 cutting or export or in any other way. In view of this wide language of the arbitration clause it cannot be possibly said that the dispute which has been raised in the present case is outside the terms of the arbitration clause. Reliance in this connection was however placed on the opening words of cl. 6 of the agreement of February 1953, which say that the agreement was arrived at "without prejudice to the contents of the letter sent by the first party (namel y, the appellant) to the second and third parties (namely, the respondents) on the date 7th of February, 1953, and without the first party (namely, the appellant) withdrawing the said letter". This letter contained certain contentions of the appellant based on the agreements between the parties. Those words do not in our opinion in any way out down the wide amplitude of the arbitration clause; at the best they can only mean that the appellant was free to raise the contentions which he had raised in this letter for the decision of the arbitrator. Nor do these words confine the agreement of February 1953 only to the dispute arising out of the agreement with Divkar as contended for on behalf of the appellant. We are therefore of opinion that the dispute raised in this case is covered by the arbitration clause, and the contention of the appellant in this behalf must also fail.

Re(4). We now turn to the question of fraud. The contention on behalf of the appellant in this connection is that serious allegations of fraud have been made against him and therefore this is not a case which should be referred to arbitration. Sub-section (4) of s. 20 lays down that where no sufficient cause is shown, the court shall order the agreement to be filed and make an order of reference to the arbitrator. It is therefore open to a court under this sub- section, where sufficient cause is shown not to order the agreement to be filed and not to make a reference to the arbitrator. The words of this sub-section leave a wide discretion in the court to consider whether an order for 713 filing the agreement should be made and a reference made accordingly. It is neither necessary nor desirable to lay down in general terms what would be sufficient cause which would entitle a court to refuse to order the agreement to be filed and thus refuse to make an order of reference. The court will have to decide on the facts of each case whether sufficient cause has been made out for not ordering the agreement to be filed and not making the order of reference. Learned counsel for the appellant, however, contends that serious allegation of fraud has been generally held by courts to be a sufficient ground for not ordering the agreement to be filed and not making the reference'. He relies in this connection on the leading case of Russel v. Russel (1). That was a case of partnership between two brothers containing an arbitration clause. One of the brothers gave notice to the other for dissolving the 'Partnership. The other brother thereupon brought an action alleging various charges of fraud and claiming that the notice should be declared void and no announcement of the dissolution of partnership should be allowed. Thereupon the brother who was charged with fraud moved that the matter be referred to arbitration under the arbitration clause. That was resisted and the court held that "in a case where fraud is charged, the court will in general refuse to send the dispute to arbitration if the party charged with the, fraud desires a public inquiry. But where to arbitration is by the party charging the fraud, the court, will not necessarily accede to it, and will never do so unless a prima facie case of fraud is proved."

This case certainly lays down that where allegations of fraud are made, the party against whom such allegations are made may successfully resist the reference to arbitration. (1) [1880] 14 Ch.D. 471.

714 The principle of this case was followed in Charles Osenton and Company v. Johnston (1). In that case a firm of estate agents and surveyors resisted the reference to an official referee under s. 89 of the Judicature Act of 1925. The decision of in official referee could not be called in question by appeal or otherwise except on a point of law as provided by s. 1 of the Administration of Justice Act, 1932. The firm therefore contended that as their professional reputation was involved the matter should not be referred to the official referee and the House of Lords held that as the professional reputation of the appellants was involved, that question should not be left to the final decision without appeal of an official referee but should be tried before the normal tribunal of a High Court with a jury.

The principal of these cases has also been followed in India with reference to cases coming under ss. 20 and 34 of the Act. (See, Maharaja Sir Mahindra Chandra Nandy v. H. V. Low & Co., Ltd. (2), Narsingh Prasad Boobna v. Dhanraj Mills(3), Union of India v. Firm Vishvadha Ghee Vyopar Mandal Sudhangsu Bhattacharjee v. Ruplekha Pictures(5). There is no doubt that where serious allegations of fraud are made against a party and the party who is charged with fraud desires that the matter should be tried in open court, that would be a sufficient cause for the court not to order an arbitration agreement to be filed and not to make the reference. But it is not every allegation imputing some kind of dishonesty, particularly in matters of accounts, which would be enough to dispose a court to take the matter out of the forum which the parties themselves have chosen. This to our mind is clear even from the decision in Bussel's case (6). In that case there were allegations of constructive and (1) [1942] A. C. 130.

(2) A. I. R. 1924 Cal. 796.

(3) I. L. R. (1942) 21 Patna 544.

(4) I.L. R. (1953) 1 All. 423.

(5) A.I.R.1954. cal. 281.

(6) [1880] 14 Ch. D. 471.

715 actual fraud by one brother against the other and it was in those circumstances that the court made the observations to which we have referred above. Even so, the learned master of the Rolls also observed in the course of the judgment at p. 476 as follows :

",Why should it be necessarily beyond the purview of this contract to refer to an arbitrator questions of account, even when those questions do involve misconduct amounting even to dishonesty on the party of some partner ? I do not see it. I do not say that in many cases which I will come to in the second branch of the case before the Court, the Court may not, in the exercise of its dis- cretion, refuse to interfere; but it does not appear to me to follow of necessity that this clause was not intended to apply to all ques- tions, even including questions either imputing moral dishonesty or moral misconduct to one or other of the parties."

We are clearly of opinion that merely because some allegations have been made that accounts are not correct or that certain items are exaggerated and so on that is not enough to induce the court to refuse to make a reference to arbitration. It is only in cases of allegations of fraud of a serious nature that the court will refuse as decided in Bussel's case (1) to order an arbitration agreement to be filed and will not make a reference. We may in this connection refer to Minifie v. The Railway Passengers Assurance Company (2). There the question was whether certain proceedings should be stayed; and it was held that not with standing the fact that the issue and the evidence in support of it might bear upon the conduct of a certain persons and of those who attended him and so might involve a question similar to that of fraud or no fraud, that was no ground for refusing stay. It is (1) [1880] 14 Ch. D. 471.

(2) (1881) 44 L.T. 552.

716 only when serious allegations of fraud are made which it is desirable should be tried in open court that a court would be justified in refusing to order the arbitration agreement to be filed and in refusing to make a reference. Let us therefore turn to the allegations in this case to see what their nature is. These allegations are that (i) the accounts were not made up to date, and even on demand by the respondents, the appellant did not bring them up to date; (ii) the statements of accounts which were shown by the appellant were not complete and did not appear to be correct; and (iii) the whole stock of goods was not to be found therein and the debit items appeared to be exaggerated and incorrect. These were the only allegations with respect to the accounts in the application and they do not in our opinion amount to serious allegations of fraud against the appellant which would necessitate that there should be a trial in open court. Such allegation as to the correctness or otherwise of entries in the accounts are often made in accounts suits; but they in our opinion are not such serious allegations of fraud as to induce a court to order that the arbitration agreement should not be filed and no reference should be made. Besides these allegations as to accounts the respondents also said that an injunction should be granted restraining the appellant from removing the stock so as to avoid misappropriation thereof pending the appointment of a receiver. That was not an actual allegation of mis- appropriation; it merely said that the respondents were afraid that there might be misappropriation in future unless an injunction was issued and a receiver appointed. Further in the affidavit in support of the application for appointment of receiver after referring to their own conclusions from the state of accounts, the respondents said that they had not received the true and complete account of the felling of the jungle, ready goods, the goods sold and the goods in balance from the appellant.

717 They also said that they suspected that on their conclusions from the accounts supplied to them, there might be misappropriation of the goods and of money. They further alleged that in the accounts shown to them, the sale of charcoal was shown at a rate much lower than the prevailing market rate and under these circumstances the respondents apprehended that if the work of the sale of goods remained in the hands of the appellant, the real price of the goods would not be realised. There is no allegation, however, that in actual fact the appellant had made secret profits by selling goods at a higher price and showing a lower price in the account. The respondents pointed to the entries in the account which showed the lower rate of the sale price in support of their apprehension that if the work of sale of goods remained in the hand of the appellant the real price would not in future be realised. A perusal therefore of the application under s. 20 and the affidavit filed in support of the application for appointment of receiver does not disclose any serious allegations of fraud against the appellant.

What it discloses is that the respondents were not satisfied with the accounts submitted to them and were suspicious that they did not disclose the true and complete state of affairs. Such allegations, as we have already remarked are often made in account suits and if they were to be sufficient ground for not referring an account suit to arbitration on the ground of fraud, hardly any arbitration agreement in a matter in which accounting would be necessary could be referred to arbitration. That is why we emphasise that even in the leading case of Russel, (1) the learned Master of the Rolls was at pains to point out that it could not necessarily be said in a case of accounts that no reference to arbitration should be made, even though questions relating to accounts which might involve misconduct amounting even to dishonesty on the part of some partner might arise in the arbitration proceedings and even cases where moral dishonesty or moral misconduct is attributed to one party or the other might be 718 referred to arbitration. It seems to us that every allegation tending suggest or imply moral dishonesty or moral misconduct in the matter of keeping accounts would not amount to such serious allegation of fraud as would impel a court to refuse to order the arbitration agreement to be filed and refuse to make a reference.

Looking to the allegations which have made in this case we are of opinion that there are no such serious allegations of fraud in this case as would be sufficient for the court to say that there is sufficient cause for not referring the dispute to arbitration. This contention of the appellant must also therefore fail.

The appeal therefore fails and is hereby dismissed with costs.

Appeal dismissed.

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