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1953 DIGILAW 258 (MAD)

Thonadapu Ramaswami v. Kothamsau Venkateswarulu

1953-08-19

RAMASWAMI GOUNDER, SUBBA RAO

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Subba Rao, J.- This Civil Revision Petition first came before Rajagopalan, J., who directed it to be posted before a Bench on the ground that the subject-matter of the revision is more than Rs. 10,000. The revision was filed against the order of the learned Subordinate Judge of Guntur in C.M.A. Nos. 125 of 1950 and 6 and 7 of 1951 dismissing the appeals against the order of the District Munsif of Guntur in I.A. Nos. 1061, 1062 and 1063 of 1950 in O.S. No. 275 of 1948. The facts may be briefly stated. The plaintiff and defendants 1, 2, and 3 were partners carrying on a business in tobacco at Guntur under the name and and style of Thondepu Ramaswamy & Company. The plaintiff filed O.S. No. 275 of 1948 on the file of the District Munsif Guntur, for accounts. The defendants raised various pleas. The contentions of the parties are reflected in the following issues: 1. Whether the 3rd defendant is a partner of the suit firm? 2. What are the assets and liabilities of the firm? 3. Whether defendants 6 and 7 are necessary parties to the suit and whether the plaintiff can claim any relief against them in this suit? 4. Whether the suit is bad for misjoinder of parties? 5. To what relief? Additional issues:- 1. Whether the award is liable to be set aside? 2. Whether this Court has no pecuniary jurisdiction to try this suit? After evidence was taken and documents were marked, on 30th November, 1949 the parties agreed to refer the matter to arbitration. They filed I.A. No. 2848 of 1949 for referring the subject-matter of the suit to the arbitration of a sole arbitrator, Doredla Narasimham. The Court referred the dispute to him. Pending the suit some of the creditors of the 3rd Defendant filed I.P. No. 12 of 1949 on 28th June, 1949 for adjudicating him an insolvent. The plaintiff filed an application to be impleaded as a party to the creditors petition and it was allowed on 12th September, 1949. On 31st October, 1949 the Official Receiver was appointed interim receiver. As we have already stated, the reference was made to arbitration on 30th November, 1949. On 15th December, 1949 the third defendant was adjudicated insolvent. It was made ex-parte as the third defendant did not appear. On 31st October, 1949 the Official Receiver was appointed interim receiver. As we have already stated, the reference was made to arbitration on 30th November, 1949. On 15th December, 1949 the third defendant was adjudicated insolvent. It was made ex-parte as the third defendant did not appear. On the 18th he applied for setting aside the ex-parte order of adjudication and that application was allowed on 8th April, 1950. In setting aside the order of adjudication, the insolvency court vested the properties of the insolvent in the Official Receiver. Meanwhile the arbitrator made his award dated 7th March, 1950 and filed it in Court on 8th March, 1950. On 4th August, 1950, the third defendant was again adjudicated insolvent. The Official Receiver was made a defendant to the suit on 6th September, 1950. Before the Official Receiver took any steps in the matter, defendants 1, 2, and 3 filed the aforesaid three applications in court for setting asside the award. The Official Receiver was made a party in two of the applications. He filed a counter stating that the award was invalid. It would be seen from the aforesaid facts that the award was made when the adjudication was subsisting and that though the ex-parte order of adjudication was set aside on 8th April, 1950, the properties of the third defendant continued to vest in the Receiver by the express order of the Court. The validity and binding nature of the award was questioned by the parties on various grounds. The learned District Munsif disposed of the three applications along with the suit. He held that the award was not valid as the official Receiver was not made a party to the reference. He set aside the award and directed that the suit be proceeded with on the merits. The aforesaid three appeals were filed against that order of the District Munsif in the applications. The learned Subordinate Judge held against the plaintiff, on all the points but found that the arbitrator showed some favouritism to the plaintiff and that he was some-what partial towards him. On the finding he dismissed the appeals. The aforesaid revision was filed against that order. Mr. The learned Subordinate Judge held against the plaintiff, on all the points but found that the arbitrator showed some favouritism to the plaintiff and that he was some-what partial towards him. On the finding he dismissed the appeals. The aforesaid revision was filed against that order. Mr. Somasundaram, the learned counsel for the petitioner, contended that the learned Judge erred in dismissing the appeal without giving a definite finding on’ the question of the arbitrator’s misconduct and, therefore, this is a fit case for interference in revision. Learned counsel for the respondent while supporting the finding of the lower court went further and contended that the award was also bad because the Receiver was not a party to the reference. In paragraphs 29 to 37 the learned Judge considered the ground of attack against the award, namely, whether the award showed that the arbitrator was partial towards the plaintiff. In paragraphs 30, 31 32, 33 and 34 he considered the various directions given in the award to ascertain whether the arbitrator was guilty of partiality. In paragraph 35 he made the following observations: "In respect of grounds 1, 3 and 4 above raised by the learned advocates and the one which I have now myself found and referred to in the immediately preceding paragraph, there can be no satisfactory answer, nor has there been any. These directions in the award are sufficient to give the impression that some amount of favouritism has been shown by the arbitrator for the plaintiff, that he had a very soft corner for the plaintiff and also that it is somewhat partial towards the plaintiff, though it may not be quite appropriate to stamp the award as having been grossly partial towards the plaintiff. In my opinion, when there are these glaring acts of at least some favouritism or partiality towards the plaintiff it would not be proper to allow the award to stand. In my opinion, when there are these glaring acts of at least some favouritism or partiality towards the plaintiff it would not be proper to allow the award to stand. More so when the 3rd defendant has now lost all his interest in his estate and it has become vested in the Official Receiver for the benefit of the general body of creditors." It will be seen from the aforesaid remarks that the learned Judge held in so many terms that the arbitrator was guilty of partiality to, and favouritism for, the plaintiff and that though he was not willing to characterise that partiality as gross partiality, in his view the said partiality in the circumstances of the case was sufficient to set aside the award. This finding is purely one of fact and there is no scope for the application of the provisions of section 115, Civil Procedure Code. But it was pointed out that the Judge did not make up his mind on the question whether the arbitrator was partial. In support of his argument the following passages in the judgment are relied upon: "(1) At the same time, I would point out that except that the arbitrator has gone a little beyond the proper limits of his discretion, there is nothing radically wrong with the award or the work done by him." "(2) For the reasons stated above, though the arbitrator has not exhibited gross partiality towards the plaintiff, I consider that he has been a little over-zealous and generous towards the plaintiff in making the particular directions in respect of O.S. No. 91 of 1949, making the defendants jointly and severally liable and in awarding the entire value of the tobacco exported by the 3rd defendant to the plaintiff himself and that in the presence of these it is neither just nor safe to allow the award to stand." These passages again show that though the learned Judge was not willing to attribute gross partiality to the arbitrator, he had no difficulty in holding that he was over-zealous and generous towards the plaintiff and that he had gone beyond the proper limits of discretion. Here again he was not detracting from what he had already said but only emphasising the fact that the award was vitiated by partiality, though not by gross partiality. Here again he was not detracting from what he had already said but only emphasising the fact that the award was vitiated by partiality, though not by gross partiality. The observations of the learned Judge indicate that he was not willing to offend the susceptibilities of the arbitrator by using strong words against him. But he made his meaning clear in the said paragraphs, namely, that he was partial towards the plaintiff and that the award should not stand in the circumstances of the case, when the Official Receiver who represented the interests of the creditors was not duly represented. We do not think that any case has been made out for interference in revision. This would be sufficient to dispose of the revision, but as the learned counsel for the respondent argued at length on the question whether the award made without giving notice to the Official Receiver would be valid we think it would be proper to express our opinion on the same. Learned counsel contended that an award made against a party who has become insolvent is invalid if the Receiver has not represented him during the enquiry. It is settled law that a decree obtained, or a sale held, against an estate of an insolvent without impleading the Official Receiver is not binding on him. In Raghunath Das v. Sundar Das Khetri1, the Judicial Committee held that a sale held in execution of a decree of the insolvent’s property without bringing the Official Assignee on record was not binding on him. The reason for this rule has been clearly stated by the Privy Council in Kalachand Banerjee v. Jagannath Marwari2. There the Privy Council ruled that a mortgage decree obtained in the absence of the receiver against the insolvent was not res judicata against him. At page 598 they gave their reasons for the decision as follows: “That the rights of the secured creditor over a property are not affected by the fact that the mortgagor or his heir has been adjudicated an insolvent is, of course, plain, but that does not in the least imply that an action against him may proceed in the absence of the person to whom the equity of redemption has been assigned by the operation of law. ..... .To him, therefore, must be given the opportunity of redeeming the property...... ..... .To him, therefore, must be given the opportunity of redeeming the property...... The ratification by Amulya of the deed of pom-promise on which the decree against him proceeded was therefore a nullity, and the whole proceedings by which he was made a party to the suit were equally ineffective to bind the equity of redemption vested in the receiver.” In Ammanna v. Ramakrishna Rao3, a division bench of this Court consisting of Rajamannar, C.J. and Panchapakesa Ayyar, J., held that where during the pendency of a suit on a mortgage some of the mortgagors were adjudicated as insolvents, the action could not properly proceed against such mortgagors in the absence of the Official Receiver to whom the equity of redemption had been assigned by operation of law and that where the Official Receiver had not been given an opportunity to come on record and to defend the suit, the decree would not be binding on the Official Receiver or the purchaser of the equity of redemption from him. It is not necessary to multiply cases as the proposition of law stated in the aforesad decisions is not really disputed. The same principle has been applied to arbitration proceedings both in England as well as in India. In 1 Halsbury’s Laws of England, Second Edition, Lord Hailsham, page 627, the author summarises the law in England as follows: “Where a party to a submission becomes bankrupt pending the reference, although the submission is not revoked by the bankruptcy, the trustee in bankruptcy is not as a general rule bound by the submission.” In Dod v. Herring4 the defendants obtained a decree for a sum of £10,000 against one J. T. subject to an award. J. T. then became bankrupt, and afterwards the award was made, by which the amount of the damages was reduced. The assignees in insolvency did not go before the arbitrator. On the said facts the Vice-Chancellor held that the assignees, if they chose to object to the proceedings, they should not be bound by them. In Thirtha Lal Day v. Bhusan Moyee Dasi5, the Federal Court of India held by a majority the present Chief Justice differing that an arbitration without bringing a widow of the deceased as a legal representative of her deceased husband was invalid and not binding on her. In Thirtha Lal Day v. Bhusan Moyee Dasi5, the Federal Court of India held by a majority the present Chief Justice differing that an arbitration without bringing a widow of the deceased as a legal representative of her deceased husband was invalid and not binding on her. When it was contended that her sons represented her, Mahajan, J., made the following observations at page 260:- “It is axiomatic that if a person is not a party to, or properly represented in any proceedings, he cannot be bound by those proceedings. The ordinary rule of law is that in case of death of a party a valid award cannot be given which will bind the estate unless the legal representatives of the deceased are made parties to the reference. This can be done by giving notice to them where the reference is not through court and where proceedings for substitution of the legal representatives is not necessary. As pointed out by that learned Judge, Sir Ashutosh Mookerjee, in Manindra Nath v. Mohanunda Roy6, the submission to arbitration is not revoked by the death of one of the parties if the intention is that not merely the parties themselves should be bound by the decision of the arbitrator but also their representatives in interest, but if the hearing is not completed, it will be necessary to bring the representatives of the deceased party on the record or to make them party to submission. If, on the death of a party, his representative in interest proceeds with the arbitration and becomes a party to it the award pronounced in the reference is binding on him. The principle that in a pending suit all parties must join in the reference also applies to arbitrations out of Court.” On the aforesaid principle their Lordships held that even though her sons who were co-heirs with her appeared before the arbitrator, the award was not binding on her. It is clear from the aforesaid case-law that the courts have applied the principle of proper representation to arbitration proceedings though there is no definite rule or provision compelling such representation. It is clear from the aforesaid case-law that the courts have applied the principle of proper representation to arbitration proceedings though there is no definite rule or provision compelling such representation. If a mortgage decree obtained against an insolvent is not binding on the Official Receiver, if a sale held of an insolvent’s properties will not affect the rights of the Official Receiver if he is not party to the execution proceedings, if the arbitration proceedings would not be binding on a legal representative of deceased party to a reference if he is not brought on record, we do not see any reason why an award can be made binding on a receiver in whom the properties of the insolvent vest in law even though he is not brought before the arbitrator. On an insolvency the entire property vests in the Receiver. It is therefore incumbent upon the parties before the arbitrator to give notice to the Official Receiver. In this case admittedly the plaintiff had knowledge of the insolvency of the third defendant but he did not take any steps to bring the Official Receiver on record and allowed the award to be made behind his back. The award therefore cannot bind the Official Receiver. It is then contended that the order of adjudication was set aside and that the award was filed in court before he was readjudicated insolvent. This argument ignores the fact that notwithstanding the setting aside of the ex parte order of adjudication the properties were expressly vested in the Official Receiver by the order of the court. But Mr. Somasundaram comended that the learned Subordinate Judge who set aside the award did not really mean what he said but intended to convey the idea that the interim receiver continued as before the order of adjudication. A perusal of the order of the Subordinate Judge shows that he clearly and in express terms vested the properties in the Official Receiver. The relevant portion of the order of the Subordinate Judge is as follows: “There are a number of decrees passed against him and it is not a pleasure to the creditors to rush to Court when they are able to recover the debts in the usual course. The relevant portion of the order of the Subordinate Judge is as follows: “There are a number of decrees passed against him and it is not a pleasure to the creditors to rush to Court when they are able to recover the debts in the usual course. The fact that the petitioner did not move his little finger up till now to make arrangements for the discharge of the debts, clearly shows that the statement made by him that the value of his properties far exceeds the liabilities is not true. This also leads to the further inference that he wants to drag on the proceedings as long as possible. But anyhow it is not proper to deny him an opportunity to make good the representation which he made. So I allow the property to be vested in the Official Receiver and allow the petitioner to show that he has capacity and willingness to discharge the debts.” It is clear from the aforesaid order that the learned Judge was not willing to make an unconditional order setting aside the ex parte order of adjudication for the reasons mentioned by him. He therefore made a conditional order. He set aside the order of adjudication but specifically vested the properties in the Official Receiver. The order may be right or wrong. No appeal was filed against that order and that had become final. If the properties continued to vest in the Receiver after the order setting aside the ex parte order of adjudication, any arbitration made behind his back could not for the aforesaid reasons bind the Official Receiver. It was then contended that the Official Receiver would not be prejudiced as he could raise all the contentions open to him before the Court made a decree on the award. This argument does not take into consideration the scope of the enquiry before the Court after the award is filed. The Official Receiver can seek to set aside the award only on specified grounds. He cannot either plead or attempt to prove that the award was wrong on facts and was not supported by the evidence in the case. In the circumstances this argument has no merits. Mr. The Official Receiver can seek to set aside the award only on specified grounds. He cannot either plead or attempt to prove that the award was wrong on facts and was not supported by the evidence in the case. In the circumstances this argument has no merits. Mr. Somasundaram, the learned counsel for the petitioner, advanced an argument to the effect that the Official Receiver is not a necessary party in a claim for money and that the same principle would apply to a case for a dissolution of partnership and for accounts. Learned counsel for the respondent does not contest the position that a Receiver is not a necessary party to a suit for recovery of amounts due from the insolvent or for damages f6r breach of a contract, for the plaintiff does not seek to proceed in the suit against the property of the insolvent and the decree debt would have to be proved again before the Official Receiver. But the same cannot be said of a partnership action. In Ghosh’s “Provincial Insolvency Act” the legal position was considered at some length and the learned author summarised the law on the subject as follows at page 214: “Therefore, on the insolvency of a partner the firm is dissolved as regards him and his Receiver does not step into his shoes so as to be a continuing partner. But the property of the insolvent upto the date of his adjudication in the partnership assets vests in the Receiver and he has the right to realise those assets by suit.” It will therefore be manifest that the property of the insolvent pertaining to his share in the partnership assets up to the date of his adjudication vests in the Receiver, and if the said property vests in him, it follows that he is a necessary party to a suit for a dissolution of partnership and for accounts. If so he is equally a necessary party to arbitration proceeding wherein the insolvent’s share in the partnership assets is ascertained and worked out. The learned Subordinate Judge has therefore erred in holding that the award would be binding on the Receiver though he was not impleaded as a party before the arbitrator. In the view we have taken it is not necessary to consider the questions raised by the other respondents. The learned Subordinate Judge has therefore erred in holding that the award would be binding on the Receiver though he was not impleaded as a party before the arbitrator. In the view we have taken it is not necessary to consider the questions raised by the other respondents. For the aforesaid reasons we are of the view that no case has been made out for interference in a revision petition. The petition fails and is dismissed with costs. Advocate’s fee Rs. 200. K.S. ----- Petition dismissed.