# M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA, DISTRICT SEHORE AND OTHERS v. M/S. MODI TRANSPORT SERVICE

- **Citation:** [2022] 4 S.C.R. 647
- **Court:** Supreme Court of India
- **Decided:** 2022-05-11
- **Case number:** Civil Appeal No. 1973 of 2022
- **Bench:** Sanjiv Khanna, Bela M. Trivedi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-p-rajya-tilhan-utpadak-sahakari-sangh-maryadit-pachama-district-sehore-and-36072
- **Pages:** 28

## Headnote

Arbitration Act, 1940: s. 21 - Parties to suit may apply for
order of reference - Dispute between the parties - Suit filed for the
settlement of accounts - Thereafter, application by the respondent
for appointment of Chartered Accountant-CA as Commissioner, to
submit report after conducting audit of accounts - Appointment of
CA - Pursuant thereto, submission of report by CA before the court
stating the amount due and payable by the appellant to the
respondent - Thereafter, objections by the appellant that CA was
appointed as Commissioner u/Or. XXVI r. 9 and not as arbitrator u/
s.21 - Rejection of objections - Order appointing the CA as an
arbitrator attained finality, and also upheld by the High Court -
On appeal, held: Report of the Chartered Accountant is not an award
and is to be treated as a report of a Commissioner appointed by the
court u/Or. XXVI r. 11 - There is distinction between the scope and
functions of an arbitral tribunal and a commissioner appointed
u/Or. XXVI rr 9 and 11 - For submission to arbitration, there must
be an arbitration agreement or an agreement in terms of s. 21 -
Whereas the Commissioners are appointed by the court, may be
with consent of the parties, or even when there is objection to the
appointment - Pre-existing agreement or the requirement that the
parties agree before the court, as is mandatory in case of arbitration,
is not necessary when a court directs appointment of a commissioner
- On facts, when the court appointed the CA who as an expert was
required to give his opinion on the statement on accounts to facilitate
and help the court to adjudicate and finally decide the suit - Instant
application cannot be read as moved on a prior agreement or
consensus for reference to arbitration as was not signed by the
appellant - Raising no objection as to appointment of CA does not
give rise to an affirmation that the appellant had agreed to his
appointment as an arbitrator so as to substitute court jurisdiction -
[2022] 4 S.C.R. 647
647
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Moreover, the court always maintained its dominion over the subject
matter of the suit - Thus, the order of High Court set aside - Code
of Civil Procedure, 1908 - Or. XXVI r. 11.
Allowing the appeal, the Court
HELD : 1.1 The first condition for invoking Section 21 of
the Arbitration Act, 1940 is that the parties to the suit must agree
that any matter of difference between them would be referred to
arbitration. All interested parties must agree and apply to the
court where the suit is pending to obtain an order of reference to
arbitration. The subject matter of the reference must be any of
the matters between the parties to the suit. Entire subject matter
of the suit may not be referred to arbitration. Parties may agree
to only refer a part or portion of the dispute to arbitration. The
expression 'agree' is significant and expressive as to when a court
can exercise jurisdiction under Section 21 of the Act. Word 'agree'
means any arrangement or understanding or action in concert.
The Contract Act, 1872 states that an agreement may be oral or
in writing, albeit the command of Section 21 of the Act is that the
parties should apply to the court in writing for an order of
reference. In the context of Section 21, the court can refer a
dispute/difference subject matter of a suit when the parties
mutually agree to arbitration. There must be a joining or meeting
of minds between the parties to go for arbitration in respect of a
subject matter in a pending suit. [Para 15][661-D-G; 662-A]
1.2 Arbitration is an alternative to the court adjudication
process by a private forum chosen by the parties. Normally
reference can be made or even directed to the arbitrator only if a
pre-existing arbitration agreement subsists between the parties.
In the absence of a pre-existing arbitration agreement, the court
has no power, authority or jurisdiction to refer unwilling parties
to arbitration. Therefore, the word 'agree' in Secti

## Text

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647
 M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH
MARYADIT, PACHAMA, DISTRICT SEHORE AND OTHERS
v.
M/S. MODI TRANSPORT SERVICE
(Civil Appeal No. 1973 of 2022)
MAY 11, 2022
[SANJIV KHANNA AND BELA M. TRIVEDI, JJ.]
Arbitration Act, 1940: s. 21 - Parties to suit may apply for
order of reference - Dispute between the parties - Suit filed for the
settlement of accounts - Thereafter, application by the respondent
for appointment of Chartered Accountant-CA as Commissioner, to
submit report after conducting audit of accounts - Appointment of
CA - Pursuant thereto, submission of report by CA before the court
stating the amount due and payable by the appellant to the
respondent - Thereafter, objections by the appellant that CA was
appointed as Commissioner u/Or. XXVI r. 9 and not as arbitrator u/
s.21 - Rejection of objections - Order appointing the CA as an
arbitrator attained finality, and also upheld by the High Court -
On appeal, held: Report of the Chartered Accountant is not an award
and is to be treated as a report of a Commissioner appointed by the
court u/Or. XXVI r. 11 - There is distinction between the scope and
functions of an arbitral tribunal and a commissioner appointed
u/Or. XXVI rr 9 and 11 - For submission to arbitration, there must
be an arbitration agreement or an agreement in terms of s. 21 -
Whereas the Commissioners are appointed by the court, may be
with consent of the parties, or even when there is objection to the
appointment - Pre-existing agreement or the requirement that the
parties agree before the court, as is mandatory in case of arbitration,
is not necessary when a court directs appointment of a commissioner
- On facts, when the court appointed the CA who as an expert was
required to give his opinion on the statement on accounts to facilitate
and help the court to adjudicate and finally decide the suit - Instant
application cannot be read as moved on a prior agreement or
consensus for reference to arbitration as was not signed by the
appellant - Raising no objection as to appointment of CA does not
give rise to an affirmation that the appellant had agreed to his
appointment as an arbitrator so as to substitute court jurisdiction -
[2022] 4 S.C.R. 647
647
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Moreover, the court always maintained its dominion over the subject
matter of the suit - Thus, the order of High Court set aside - Code
of Civil Procedure, 1908 - Or. XXVI r. 11.
Allowing the appeal, the Court
HELD : 1.1 The first condition for invoking Section 21 of
the Arbitration Act, 1940 is that the parties to the suit must agree
that any matter of difference between them would be referred to
arbitration. All interested parties must agree and apply to the
court where the suit is pending to obtain an order of reference to
arbitration. The subject matter of the reference must be any of
the matters between the parties to the suit. Entire subject matter
of the suit may not be referred to arbitration. Parties may agree
to only refer a part or portion of the dispute to arbitration. The
expression 'agree' is significant and expressive as to when a court
can exercise jurisdiction under Section 21 of the Act. Word 'agree'
means any arrangement or understanding or action in concert.
The Contract Act, 1872 states that an agreement may be oral or
in writing, albeit the command of Section 21 of the Act is that the
parties should apply to the court in writing for an order of
reference. In the context of Section 21, the court can refer a
dispute/difference subject matter of a suit when the parties
mutually agree to arbitration. There must be a joining or meeting
of minds between the parties to go for arbitration in respect of a
subject matter in a pending suit. [Para 15][661-D-G; 662-A]
1.2 Arbitration is an alternative to the court adjudication
process by a private forum chosen by the parties. Normally
reference can be made or even directed to the arbitrator only if a
pre-existing arbitration agreement subsists between the parties.
In the absence of a pre-existing arbitration agreement, the court
has no power, authority or jurisdiction to refer unwilling parties
to arbitration. Therefore, the word 'agree' in Section 21 of the
Act refers to consensus ad idem between the parties who take a
considered decision to forego their right of adjudication before a
court where the suit is pending, and mutually agree to have the
subject matter of the suit or part thereof adjudicated and decided
by an arbitrator. [Para 17][663-G-H; 664-A-B]
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1.3 In the instant case, the application dated 23.12.1994
was moved by the plaintiff and it was not signed by the defendant.
As per the heading, the application was for the appointment of a
commissioner/arbitrator to conduct an 'enquiry' in respect of the
accounts by a competent Chartered Accountant who shall act as
a panch/Commissioner and submit a report after conducting an
audit of the accounts. It was stated that the transactions between
the parties are fairly large in number and, therefore, it is necessary
to handover the said task to a Chartered Accountant. The
application also states that for the enquiry regarding accounts an
opportunity of hearing should be given to both the parties. Name
of SKM, Chartered Accountant, to act as panch/commissioner
was proposed. The prayer in the application was that the panch/
commissioner would submit the report to the court after
conducting an audit of the accounts. The application cannot be
read as an application moved on a prior agreement or consensus
for reference to arbitration. The application cannot be read as an
application by the parties under Section 21 of the Arbitration Act.
First, it is not an application for reference of disputes to an
arbitrator for adjudication but a request for the appointment of
an expert, that is, a Chartered Accountant, who would examine
the accounts and papers and submit the report to facilitate the
court. The role assigned to SKM is also clear from the letter of
appointment which states that SKM has been appointed as CA
and would be conducting an audit of all disputed accounts of both
sides, and that he should send a report to the court. Secondly,
the court's jurisdiction to finally decide was not questioned or
annihilated. In fact, the court always remained in the picture,
exercised parley as an adjudicator having dominion over the
subject matter of the suit. [Paras 18 and 19][664-E-G; 665-A]
1.4 The first portion of the order dated 23.12.1994 records
that the plaintiff has made an application for settlement of accounts
and that the accounts can be examined only by a well-educated
Chartered Accountant. A copy of the application had been handed
over to the counsel for the defendant who had no objection "to
being appointed as Panch in this case". This statement is
somewhat vague, but cannot be read as as an indication or
affirmation that the defendant had agreed to the appointment of
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA,
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE
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an arbitrator as an alternative and substitute to court adjudication.
If it was so, this should have been clearly stated to enable the
parties to respond and make statement. At best it was restricted
to the appointment of an expert/commissioner who would examine
the accounts and submit his report. The second portion of the
order dated 23.12.1994 states that in the application name of
SKM, Chartered Accountant, as panch was proposed to which
no party had any objection. Thereafter, the order records the
direction of the court that the fee of the arbitrator 'would be as
prescribed in the schedule of the Arbitration Council of India
and if the arbitrator demands a fee the same should be equally
shared by both the parties'. The last portion does not incorporate
and does not refer to any agreement or even concession given
by the defendant agreeing to arbitration as an alternative to court
adjudication and decision. The court had not disposed of the suit
by referring the subject matter or a part of the subject matter of
the suit to arbitration. The said order is for issuing a commission
as the court had accepted an application filed by the plaintiff for
verification of the accounts. The commissioner was to act as an
expert or facilitator for the court and submit a report to the court
to help the court adjudicate and finally decide the suit. [Paras 20
and 21][665-B-G]
1.5 There is also a distinction between the scope and
functions of an arbitral tribunal and a commissioner appointed
under Order XXVI Rules 9 and 11 of the Code. For submission
to arbitration, there must be an arbitration agreement or an
agreement in terms of Section 21 of the Act that the difference or
dispute between the parties for which they intend to be
determined in a quasi-judicial manner. Commissioners are
appointed by the court. Appointment may be with consent of the
parties, or even when there is objection to the appointment.
Preexisting agreement or the requirement that the parties agree
before the court, as is mandatory in case of arbitration, is not
necessary when a court directs appointment of a commissioner.
In the case of a reference to a commissioner, all that the parties
expect from the commissioner is a valuation/ examination of the
subject matter referred, which he would do according to his skill,
knowledge and experience, which may be without taking any
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evidence or hearing argument. The principle of a 'facilitator' can
be introduced, which a court may appoint, be it a commissioner
or an expert, for a specific purpose and cause for ascertainment
of a fact which may be even disputed. In some cases, the
commissioner may even hear the parties and give his expert
opinion based on the material or evidence produced by the parties
before the commissioner, as in this case when the court appointed
a Chartered Accountand who as an expert was required to give
his opinion on the statement on accounts to facilitate and help
the court arrive at a fair and just decision. It was to save the
court's time and cut delay in the decision by the court. [Para
32][670-F-G; 671-A-E]
1.6 Order XXVI Rule 9 of the Code gives wide powers to
the court to appoint a commissioner to make local investigations
which may be requisite or proper for elucidating any matter in
dispute, ascertaining the market value of any property, account
of mesne profit or damages or annual net profits. Under Order
XXVI Rule 11, the court has the power to issue a commission in
a suit, in which examination of adjustment of accounts is
necessary, to a person as it thinks fit directing him to make such
examination or adjustment. When a court issues such a
commission to such a person, it can direct the commissioner to
make such an investigation, examination and adjustment and
submit a report thereon to the court. The commissioner so
appointed does not strictly perform a 'judicial act which is binding'
but only a 'ministerial act'. Nothing is left to the commissioner's
discretion, and there is no occasion to use his judgment or
permitting the commissioner to adjudicate and decide the issue
involved; the commissioner's report is only an opinion or noting,
as the case may be with the details and/or statement to the court
the actual state of affairs. Such a report does not automatically
form part of the court's opinion, as the court has the power to
confirm, vary or set aside the report or in a given case issue a
new commission. Hence, there is neither abdication nor
delegation of the powers of functions of the court to decide the
issue. Sometimes, on examination of the commissioner, the report
forms part of the record and evidence. The parties can contest
an expert opinion/commissioner's report, and the court, after
hearing objections, can determine whether or not it should rely
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA,
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE
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upon such an expert opinion/commissioner's report. Even if the
court relies upon the same, it will merely aid and not bind the
court. In strict sense, the commissioners' reports are 'nonadjudicatory in nature', and the courts adjudicate upon the rights
of the parties. [Para 33][671-E-F; 672-A-E]
1.7 The matter referred to SKM was limited to examination
of the accounts. The issues and questions of dispute in the suit
were far broader and wider. These included questions as to the
agreed price or the rate of transportation , computation of the
transportation costs payable to the plaintiff under the contract in
case the coal delivered was within or beyond the 1% stipulation,
whether or not the defendants were right in making deductions
on account of bad quality coal, higher moisture content etc.
whereby the weight of the coal had increased, delay in delivery
on the part of the plaintiff, whether the defendants are entitled to
charge interest while making recoveries, etc. SKM himself did
not decide whether or not the plaintiff is entitled to rent of the
plot or security charges observing that this was an aspect for the
court to decide. However, he forgot that his 'jurisdiction' was
limited to checking and verifying accounts and not deciding any
issue or questions beyond the accounts. [Para 35][673-C-E]
1.8 The impugned order of the High Court affirming the
order passed by the Additional District Judge is set aside. It is
held that the report of the Chartered Accountant is not an award
and is to be treated as a report of a commissioner appointed by
the Court under Order XXVI Rule 11 of the Code. [Para 36][673F-G]
Firm Khetu Ram Bashamber Dass v. Kashmiri Lal (1959)
SCC OnLine Punj 102; Kerala State Electricity Board
and Another v. Kurien E. Kalathil and Another (2018)
4 SCC 793 : [2018] 11 SCR 511; Afcons Infrastructure
Ltd. v. Cherian Varkey Construction Co. (P) Ltd. (2010)
8 SCC 24 : [2010] 8 SCR 1053; Shailesh Dhairyawan
v. Mohan Balkrishna Lulla (2016) 3 SCC 619 : [2015]
12 SCR 70; Byram Pestonji Gariwala v. Union Bank
of India (1992) 1 SCC 31 : [1991] 1 Suppl. SCR 187;
Bihar State Mineral Development Corpn. v. Encon
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Builders (I) (P) Ltd. (2003) 7 SCC 418 : [2003] 2 Suppl.
SCR 812; ITC Ltd. v. George Joseph Fernadez and
Another (1989) 2 SCC 1 : [1989] 1 SCR 469; K.K.
Modi v. K.N. Modi and Others (1998) 3 SCC 573 :
[1998] 1 SCR 601; Bharat Bhushan Bansal v. U.P. Small
Industries Corporation Ltd. (1999) 2 SCC 166 : [1999]
1 SCR 181; Dayal Singh and Others v. State of
Uttaranchal (2012) 8 SCC 263 : [2012] 10 SCR 157;
Murari Lal v. State of M.P. (1980) 1 SCC 704 : [1980]
2 SCR 249; Nagarajan v. A. Madhanakumar (1996)
SCC OnLine Mad 17 - referred to.
Felthouse v. Bindley (1862) 142 ER 1037; Davis v.
Edinburgh Magistrate 1953 SC 34 - referred to.
Case Law Reference
[2018] 11 SCR 511
referred to
Para 23
[2010] 8 SCR 1053
referred to
Para 23
[2015] 12 SCR 70
referred to
Para 24
[1991] 1 Suppl. SCR 187
referred to
Para 25
[2003] 2 Suppl. SCR 812
referred to
Para 26
[1989] 1 SCR 469
referred to
Para 27
[1998] 1 SCR 601
referred to
Para 28
[1999] 1 SCR 181
referred to
Para 30
[2012] 10 SCR 157
referred to
Para 31
[1980] 2 SCR 249
referred to
Para 31
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1973
of 2022.
From the Judgment and Order dated 19.09.2019 of the High Court
of Madhya Pradesh, Principal Seat at Jabalpur in First Appeal No. 505
of 1996.
Ms. Ankita Chaudhary, Dy. AG, Abhinav Shrivastava,
Ms. Himanshi Shakya, Sunny Choudhary, Advs. for the Appellants.
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA,
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE
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Arunabh Chowdhury, Sr. Adv., Mrs. Pragya Baghel, Sourabh
Tandon, Advs. for the Respondent.
The Judgment of the Court was delivered by
SANJIV KHANNA, J.
1. 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
2. On 03rd September 1993, the respondent before us - M/s. Modi
Transport Service,2 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 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
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.
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 'The plaintiff', for short.
3 Collectively three defendants are referred to as 'the defendant', for short.
4 Interest period was not specified.
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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 water on the coal to intentionally increase
the weight of the coal before delivery. Letter dated 05th June 1992 in this
regard was issued by the defendant to the plaintiff. The plaintiff was to
be paid transportation charges for the coal actually accepted at the plant
of the defendant and not for the coal which was not delivered. As per
clause 11 of the agreement, shortage up to 1% per truck was the
maximum limit, whereas the plaintiff had claimed that 1% shortage should
be allowed even when there was no difference between the dispatched
and delivered weight. The price of coal was deducted and recovered
from the plaintiff when the shortage was in excess and beyond the 1%
allowable limit. There were delays in the delivery of coal, sometimes
extending to more than a month from the dispatch date. Accordingly, the
defendant had made deductions on account of wrong and fraudulent
acts due to which the defendant had suffered losses. The plaintiff was
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA,
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE [SANJIV KHANNA, J.]
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also liable to pay interest as the defendant had suffered due to blockage
of funds. The defendant was not liable to pay any demurrage or rent
charges for the plot and, in fact, such charges were never paid. The
plaintiff had not delivered and kept huge quantity of coal for six to seven
months after the coal was lifted from the coal mines. Other defences
raised related to incomplete documentation and excess freight charges
by the wrong declaration as to the place from where the coal was lifted.
The letter dated 05th June 1992 enhancing the rate to Rs.1.42p. per
tonne per kilometre was withdrawn/cancelled retrospectively vide the
letter dated 30th September 1992. The letter dated 05th June 1992 was
issued on wrong facts based on the rate quoted by a sister concern of
the plaintiff in a tender floated in June 1992. Subsequently, the sister
concern had voluntarily reduced the rate to Rs.1.32p. per tonne per
kilometre. In fact, the plaintiff and their sister concern had quoted three
different rates in a short period of time to misguide and confuse the
General Manager (Plant) of the defendant who had issued the letter
dated 05th June 1992. The plaintiff did not raise any objection to the
letter dated 30th September 1992 and had continued to transport and
deliver coal post the issue of the letter. The plaintiff had accepted the
cancellation of the letter dated 05th June 1992. Furnishing of the bank
guarantee of Rs.1,00,000/- (rupees one lakh only) for six months was
not on account of an increase in rates but on account of the fact that the
contract for transportation of coal by the plaintiff has been extended up
to December 1992.
5. As stated above, the plaintiff had not quantified the amount
payable therein and had sued for settlement of accounts regarding the
quality of coal transported. They had also prayed for the interest @ 2%
which, it appears, was the amount claimed as payable per month. For
valuation, the plaint had fixed the value of the suit at Rs.1,00,000/- (rupees
one lakh only) and a court fee of Rs.8,180/- (rupees eight thousand one
hundred eighty only) was paid with the statement that excess court fee
could be deposited after the amount was quantified. However, a number
of contestations inter se parties were raised like the rate and quantification
of the transport charges, lapses and alleged failure by the plaintiff on
different accounts, the deductions made by the defendant and the
plaintiff's liability to pay interest on excess payments made.
6. During the pendency of the said suit, the plaintiff had filed an
application before the First Additional District Judge, Sehore, which reads:
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"COURT: FIRST ADDITIONAL DISTRICT JUDGE,
SEHORE (M.P.)
CIVIL SUIT NO. 16B/93
M/s Modi Transport Service
 .....Plaintiff
Versus
M.P. Rajya Tilhan Sangh etc.
 ......Defendant
Application for appointment of Arbitrator/Commissioner
1. Present Suit has been filed by the plaintiff against the
Defendants for settlement of accounts. In view of the pleadings
made by the Plaintiff, documents produced on record and pleadings
and documents of Defendant, it is prima facie clear that there is a
dispute between both the parties is in respect of accounts. For the
purpose of conducting enquiry regarding accounts after giving
opportunity of hearing to both the parties, it is necessary in the
interest that after appointing a Competent Chartered Accountant
as Panch/ Commissioner in the present case he may be directed
to submit report after conducting audit of Accounts. Since, the
transaction took place between both the parties are much higher,
therefore, it is necessary to handover the aforesaid work to a
Chartered Accountant.
Therefore, it is prayed that by allowing the present Application,
and after appointing Sh. Sushil Kumar Mantri, Chartered
Accountant, Sehore as Panch/ Commissioner as proposed by the
plaintiff, kindly direct him to Submit Report before the Hon'ble
Court after conducting Audit of the Accounts.
Sehore, dated 23.12.1994
Sd/- illegible
Plaintiff
Through Counsel"
The application was signed and moved by the plaintiff. It was not
signed and moved by the defendant.
7. On 23rd December 1994, the date on which the application was
filed and first listed, the First Additional District Judge, Sehore, passed
the following order:
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA,
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE [SANJIV KHANNA, J.]
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"COURT OF THE FIRST ADDITIONAL DISTRICT
JUDGE, SEHORE (M.P.)
Civil Suit No. 16B/93
Plaintiff along with Shri Badnairkar and Shri Amit Agrawal,
Advocate
Opposite Parties along with Shri S.K. Verma, Advocate
This case is fixed for evidence today, but an application has been
submitted on behalf of the plaintiff to the effect that in this case
accounts have to be settled between the parties and this work
can be done only by a well-educated chartered accountant. In
such a situation, if this matter is handed over to a chartered
accountant for decision, then both the parties will not have any
objection. A copy of this application was given to Mr. Verma. He
has no objection to being appointed as Panch in this case. In the
application itself, it has been proposed to appoint Shri Sushil Kumar
Mantri, Chartered Accountant, Sehore as Panch of the case, on
which no party has any objection. Hence the application is accepted.
The fee of the arbitrator will be payable according to the fee
prescribed in the schedule of the Arbitration Council of India
immediately, if the Arbitrator demands fee, both the parties should
pay half the fee to the arbitrator before settlement of the matter.
The final liability of the fee will depend on the settlement of the
fees of the case. A notice to this effect on behalf of the Sessions
Court for appointment of the arbitrator. The arbitrator should
present his decision within the stipulated period by giving notice to
the parties concerned and this matter should be placed before me
at the appointed time after being presented in the Arbitration Court.
Dated: 23.12.1994"
8. Pursuant to the said order, the court sent the following letter
dated 23rd January 1991 to S.K. Mantri, Chartered Accountant, Sehore:
"COURT OF FIRST ADDITIONAL SESSIONS JUDGE,
SEHORE (M.P.)
Sr. No 11/ Sehore
Dated - 23.01.1995
To,
Sh. S.K. Mantri
Chartered Accountant
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Sehore.
In Suit No. 11/93 of this Court titled Modi Transport Vs. Tilhan
Sangh, you have as appointed as Panch. You by conducting audit
of all the disputed records (Accounts) of both the parties, kindly
send your Report by 22.04.1995.
On receiving your Remuneration Report, payment will be made
to you in the Court.
Sd/-
(Satish Chandra Dubey)
First Additional District Judge, Sehore
(M.P.)"
9. On 28th March 1995, S.K. Mantri appeared before the court
and applied for an extension of the date to submit the report, which time
was extended. Another order dated 22nd April 1995 states that the panch
decision was not submitted and that the panch must present the award
within the stipulated period by giving notice to the parties concerned.
Thereafter, the court passed a number of orders recording the presence
of the parties and that they sought time to arrange the vouchers and the
records. Time was also given to verify the papers, which were checked
in the court in front of the parties' representatives. Order dated
18th May 1995 records that photocopy and laboratory analysis records
had been placed on record. Order dated 19th May 1995 refers to the
account summary submitted by the plaintiff regarding the pending bills
and amounts for the previous years. Information in that regard was sought
from the defendant. Therefore, it is clear that the proceedings remained
pending before the court. The suit was not treated as disposed of and
decided in view of the order dated 23rd December 1994.
10. On 22nd June 1995, S.K. Mantri submitted his report before
the court stating that an amount of Rs.24,03,300/- (rupees twenty four
lakhs three thousand three hundred only) was due and payable by the
defendant to the plaintiff. This amount included interest of
Rs. 9,43,007/- (rupees nine lakhs forty three thousand seven only)
computed @ 24% per annum on different amounts between 23rd February
1993 to 31st May 1995. He held that the plaintiff is entitled to get Rs.1.42p.
per tonne per kilometre. He held that "in my opinion the reduction of
one per cent per truck should be followed (sic-allowed) by a
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA,
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE [SANJIV KHANNA, J.]
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reduction in contract for excess reduction". Claim of the defendant
for a deduction on account of moisture and low quality coal was not
justified in the absence of evidence. Lastly, the plaintiff would be entitled
to receive rent and security charges, but because of lack of a clear
provision and a specific prayer, the amount could only be decided by the
court. Significantly the second paragraph of the report as to the basis on
which it was prepared reads:
"That the report has been prepared on the basis of records
(accounts) which have been presented to me by the plaintiff and
the opposition till date 31.05.95, which is presented before your
goodself."
11. Order dated 22nd June 1995 passed by the court mentions that
the arbitrator has presented his report and documents along with the list.
If the parties have any objections regarding the arbitral report, then they
should appear on the next date.
12. The defendants filed objections, inter alia, on different grounds
challenging the report, which objections were decided by the court of
Additional District Judge, Sehore, vide order dated 16th May 1996. He
held that S.K. Mantri had been appointed as an arbitrator as provided
under Section 21 of the Arbitration Act. The defendant's contention that
S.K. Mantri was appointed as a commissioner under Order XXVI Rule
9 of the Code of Civil Procedure, 19085 was rejected. Further, the
objections to the award filed on 01st November 1995 were beyond 30
days and barred by limitation. Counsel for the defendant was present in
the court when the arbitrator submitted the award in the court on 22nd
July 1995. The allegation of misconduct on the ground that S.K. Mantri
was a Chartered Accountant of the defendant, who was actually involved
in the preparation of accounts, was overruled as this objection was not
raised when S.K. Mantri was appointed as an arbitrator. Order dated
23rd December 1994 appointing S.K. Mantri as an arbitrator had attained
finality as it was not challenged by the defendant.
13. The first appeal preferred by the defendant before the High
Court has been dismissed vide the impugned judgment dated
19th September 1996. The High Court has affirmed the trial court's view
that during the pendency of the suit, the matter was referred to arbitration
in terms of Section 21 of the Arbitration Act. S.K. Mantri, Chartered
5 'the Code', for short.
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Accountant, was appointed as an arbitrator with the parties' consent.
The fee was payable to S.K. Mantri as per the prescribed arbitration
schedule. The objection that S.K. Mantri was the Chartered Accountant
of the defendant, was rejected as it could not be said that he had acted
in an unfair manner. That apart, the objections were filed beyond the
prescribed period of 30 days.
14. Defendant, namely, M.P. Rajya Tilhan Utpadak Sahkari Sangh
Maryadit, Pachama, District Sehore, Madhya Pradesh and the General
Manager and Managing Director of the Sahkari Sangh have accordingly
filed this appeal before us.
15. Section 21 of the Act, reads as under:
"21. Parties to suit may apply for order of reference:- Where
in any suit all the parties interested agree that may matter in
difference between them in the suit shall be referred to arbitration,
they may at any time before judgment is pronounced apply in
writing to the Court for an order of reference."
The first condition for invoking Section 21 is that the parties to the
suit must agree that any matter of difference between them shall be
referred to arbitration. All interested parties must agree and apply to the
court where the suit is pending to obtain an order of reference to
arbitration. The subject matter of the reference must be any of the matters
between the parties to the suit. Entire subject matter of the suit may not
be referred to arbitration. Parties may agree to only refer a part or
portion of the dispute to arbitration. The expression 'agree' is significant
and expressive as to when a court can exercise jurisdiction under Section
21 of the Act. Word 'agree' means any arrangement or understanding
or action in concert.6 The Indian Contract Act, 1872 states that an
agreement may be oral or in writing, albeit the command of Section 21
of the Act is that the parties should apply to the court in writing for an
order of reference. In the context of Section 21, the court can refer a
dispute/difference subject matter of a suit when the parties mutually
agree to arbitration. There must be a joining or meeting of minds between
the parties to go for arbitration in respect of a subject matter in a pending
6 See Section 2 of the Contract Act which vide clause (a) defines proposal, clause (b)
which defines when proposal is accepted, clause (e) which states that every promise
and every set of promises, forming the consideration for each other, is an agreement and
clause (h) which states that an agreement enforceable by law is a contract Clause (h)
also has two sub-clauses.
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA,
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE [SANJIV KHANNA, J.]
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suit. Felthouse v. Bindley7 states that the parties agree when they wilfully
agree to perform certain acts or refrain from doing something. The parties
should be agreed about the subject matter at the same time and in the
same sense.
 16. Interpreting Section 21 of the Act, a Full Bench of the Punjab
and Haryana High Court in Firm Khetu Ram Bashamber Dass v.
Kashmiri Lal8 has held:
"Thus, before any matter involved in a suit pending in a Court can
be referred to arbitration (a) there must be an agreement amongst
all the parties interested that any matter in dispute between them
in the suit shall be referred to arbitration; (b) if they come to such
an agreement, then they have to make an application in writing to
the Court concerned; and (c) thereafter, the Court has to pass an
order referring the dispute to the arbitrator agreed upon between
the parties.
There can be no manner of doubt that if there is no agreement
between all the parties who are interested in the case and if the
application is not made on behalf of them all, the reference made
by the Court is bad and the award based on such a reference is
invalid in law. This view has been consistently taken by all the
High Courts. In Negi Puran Singh v. Hira Singh and others,
while dealing with provisions of Civil Procedure Code, 1882, similar
to sections 21 and 23 of the Arbitration Act, Stanley, C.J. and
Banerji, J., of the Allahabad High Court held that if there was no
application signed by all the parties who were interested in the
settlement of the suit, the reference and the award given, thereafter,
would be invalid. The same view was taken in Haswa v. Mahbub
and another, by another Division Bench of the same Court.
In Gopal Das v. Baij Nath, Sulaiman, J., (as he then was),
referred to a number of decisions of Allahabad and Calcutta High
Courts and observed as follows:-
"*** it is necessary that all persons who are interested in the
matter which is in difference between the parties and which is
going to be referred to arbitration, should join. Although it is
not absolutely necessary that they should all sign the application
7 (1862) 142 ER 1037
8 1959 SCC OnLine Punj 102
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made to the Court, it is necessary that they should agree to the
reference."
See also Tej Singh and another v. Ghase Ram and others ,
In Ram Harakh Singh v. Mumtaz Hasain, the question of
acquiescence and ratification was also considered.
Following Gopal Das v. Baij Nath and Subba Rao v. Appadurai ,
Ghulam Hasan, J., held that the foundation of the jurisdiction of
the Court is the consent of the parties and the subsequent
ratification does not validate the reference which was void ab
initio. Calcutta and Madras High Courts have also taken a similar
view. The question was considered by a Full Bench of the Calcutta
High Court in Laduram v. Nandlal, Mookerjee, J., at page 114
of the report observed as follows:-
"The foundation of jurisdiction here is the agreement amongst
all the parties interested that the matters in difference between
them shall be referred to arbitration. If all the parties interested
do not apply and yet an order of reference is made, the order
is illegal because made without jurisdiction. If an award follows
on the basis of that reference, it is equally illegal, because it is
founded upon a reference made without jurisdiction."
See also Seth Dooly Chand v. Munuji and others and Khan
Mohmed v. Chella Ram and another and Subha Rao v.
Appadurai.
In Subha Rao v. Appadurai, Devadoss, J., while considering the
provisions of para 1 of Schedule II, Civil Procedure Code,-which
in substance is the same as section 21 of the Arbitration Actobserved as follows:-
"What gives the Court jurisdiction to refer the matter to
arbitration is consent of all the parties. Consent subsequently
given cannot give jurisdiction to the Court which it did not
possess at the time when it referred the matter to arbitration."
17. In our opinion, the aforesaid ratio expresses the correct position
in law. Arbitration is an alternative to the court adjudication process by a
private forum chosen by the parties. Normally reference can be made
or even directed to the arbitrator only if a preexisting arbitration agreement
subsists between the parties. In the absence of a preexisting arbitration
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA,
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE [SANJIV KHANNA, J.]
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agreement, the court has no power, authority or jurisdiction to refer
unwilling parties to arbitration. Therefore, the word 'agree' in Section
21 of the Act refers to consensus ad idem between the parties who take
a considered decision to forego their right of adjudication before a court
where the suit is pending, and mutually agree to have the subject matter
of the suit or part thereof adjudicated and decided by an arbitrator.
18. In the present case, the application dated 23rd December 1994
was moved by the plaintiff and it was not signed by the defendant.