Munshi Ram vs Banwari Lal

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Civil Appeal No. 178 of 1956

Decision Date: 9 January 1961

Coram: M. Hidayatullah, J.C. Shah

The case titled Munshi Ram versus Banwari Lal was decided by the Supreme Court of India on 9 January 1961. The judgment was authored by Justice M. Hidayatullah, with Justice J.C. Shah also sitting on the bench. The petitioner was Munshi Ram and the respondent was Banwari Lal. The decision appears in the law reports as 1962 AIR 903 and 1962 SCR Supplement (2) 477, and it is cited in the reference book RF 1966 SC1888 (6). The matters before the Court concerned an arbitration award that had been filed in the court, an application seeking to set aside that award, a subsequent compromise reached by the parties, and the validity of a decree issued in accordance with the award as modified by the compromise. The statutory framework relevant to the dispute comprised sections 15, 23, 30, 32 and 41 of the Arbitration Act 1940, together with Order 23 of the Code of Civil Procedure 1908. These provisions governed the procedure for filing the award, the grounds on which it might be challenged, the effect of a compromise made after the award, and the manner in which a decree could be fashioned to give effect to the parties’ agreement.

The factual controversy arose from a disagreement between the parties concerning their respective shares in a partnership firm, a dispute that was referred to arbitration. The arbitrator issued an award that required the payment of certain sums in instalments and, additionally, provided that the parties would share equally any income‑tax that might be assessed on those sums. The arbitrator subsequently filed the award in the court. The petitioner then moved the court for an order setting aside the award, to which the respondent filed a reply. After the pendency of these applications, the parties negotiated a compromise and jointly requested that the court pass a decree reflecting the terms of that compromise. The court issued a decree that incorporated the award as altered by the compromise. When execution of the decree was sought, the petitioner contended that the decree was a nullity because the court lacked jurisdiction to modify an arbitration award through a compromise. The Court rejected that contention, holding that the decree was not a nullity and was enforceable. The Court explained that where a compromise is entered into after an award and the parties are dissatisfied with the award, they may substitute it with an agreement that deals with matters that are inseparable from the original dispute but fall outside the scope of the Arbitration Act; in such circumstances the new compromise provides a basis for superseding the reference and revoking the award. Conversely, if the parties do not discard the award but merely adjust its operation, the portions of the award that remain unchanged continue to bind the parties and cannot be revoked. If the entire subject matter of the compromise lies within the original reference, the court may include the modified award in the operative part of the decree. If only part of the compromise is within the reference, the court may limit the operative part of the decree to the accepted portion of the award and place any severable terms of the compromise in a schedule annexed to the decree. The operative portion is enforceable as a decree, whereas the scheduled terms are enforceable as a contract, the decree serving as evidence, but they are not enforceable as a decree. In the present case, the compromise and the decree did not alter the amounts awarded to the respondents by the award; they only adjusted the mode of payment by changing the number of instalments, a matter on which the parties could agree and the court could incorporate into the operative part of the decree.

In the present dispute the Court observed that the award had originally specified the sums to be paid to the respondents, but the only modifications made thereafter related to the calculation of income‑tax and to the manner of payment by altering the number of instalments. The Court held that such changes concerned matters on which the parties could readily reach agreement, and consequently the Court could incorporate the parties’ agreement into the operative part of the decree. The Court relied on the authorities set out in Lala Khunni Lal v. Gobind Krishna Narain (1911) L. R. 38 I.A. 87 and Hemanta Kumari Debi v. Midnapur Zamindari Co. (1919) L.R. 46 I.A. 240. The judgment was rendered in the Civil Appellate Jurisdiction as Civil Appeal No. 178 of 1956, filed by special leave from the Punjab High Court judgment and order dated 26 November 1952 in L.P.A. No. 11 of 1952. Counsel for the appellant appeared on behalf of Munshi Ram, while counsel for the respondents appeared for respondents 1(a) and 1(b). The judgment was delivered on 9 January 1962 by Justice Hidayatullah. The appeal, filed by special leave, was brought by Munshi Ram, who was a judgment‑debtor, seeking execution of a decree that had arisen from a compromise following an arbitrator’s award. The respondents were the decree‑holders. The appeal challenged a common judgment and decrees of the Punjab High Court dated 26 November 1952, which arose from two appeals under the Letters Patent (Nos. 5 and 11 of 1952) that confirmed the orders of a learned single judge in Execution First Appeals Nos. 56 and 121 of 1951. This appeal was limited to the decision rendered in L.P.A. No. 11 of 1952, and to appreciate the orders and the point raised, a detailed factual narration was required.

The factual background began with the familial relationship that Munshi Ram had been adopted by Kanhaiyalal Mangalsain when he was five or six years old, while Faqir Chand and Banwarilal were the biological sons of Mangalsain. A separate business, Kanhaiyalal & Sons, comprised Kanhaiyalal and his two sons, but its affairs were not the subject of the present suit. Munshi Ram, on his part, had established another concern called “Munshi Ram, B.Sc.”, which prospered, and the respondents claimed partnership in that concern, although the merits of that claim were not examined. On 30 October 1946 the parties entered into an agreement to refer their dispute to sole arbitration by Lala Premnath, an advocate. Lala Premnath rendered an award on 3 March 1947, directing that Rs. 50,000 be paid to Faqir Chand in the following manner: Rs. 15,000 on 4 April 1947, and the balance in three equal instalments on 4 August 1947, 4 December 1947, and 4 March 1948, with interest on any defaulting instalment at the rate of 0‑8‑0 per cent per mensem. A similar award was made for Banwarilal, and a division of a residential house was ordered, but the key point for the Court’s analysis was the alteration of payment terms after the award, which was within the scope of parties’ agreement and could be incorporated into the decree’s operative part.

The arbitrator also directed that Banwarilal should receive Rs 15,000 on April 4, 1947, with the balance to be paid in three equal instalments on the same dates prescribed for Faqir Chand, and that any default in those instalments would attract interest at the same rate of eight percent per annum. In addition, the award dealt with the residential house known as the haveli. The arbitrator partitioned the haveli into two equal halves, assigning one half to Faqir Chand and the other half to Banwarilal, and this division included the portion of the house that had been constructed by Munshi Ram. The remaining immovable property was awarded to Munshi Ram as his self‑acquired estate, and the award expressly declared that neither Faqir Chand nor Banwarilal would have any interest or claim in the concern titled “Munshi Ram, B.Sc.” No further proceedings were initiated for a considerable period. Nevertheless, on April 4, 1947, the sum of Rs 15,000 was actually paid to Banwarilal.

Subsequently, at the request of Faqir Chand dated December 17, 1947, the arbitrator filed an application under section 14(2) of the Arbitration Act on January 6, 1948, and attached a signed copy of the award. The original award was not produced and was asserted to be lost. On February 19, 1948, the stamp auditor reported that the endorsement on the copy indicated that the original award had been executed on a stamp paper of Rs 50, but that there existed a deficiency of Rs 662‑8‑0. The auditor therefore recommended that the award be impounded. The Senior Sub‑Judge of Ferozepore ordered that the auditor’s report would be taken into consideration only when the original document was produced.

On July 11, 1948, Munshi Ram filed an application seeking the setting aside of the award on several grounds. He contended that the award was inadequately stamped and had not been registered, that the arbitrator had committed legal misconduct, and that the award had been rendered beyond the prescribed time limit. The respondents answered these objections. In the meantime, the parties reached an additional settlement and expressed their willingness to have a decree issued in accordance with the terms they had mutually accepted. By an order dated October 18, 1948, the Court passed a decree based on the award, but modified the award’s terms to reflect the compromise. The objections raised by the stamp auditor and the other objections raised by Munshi Ram were not taken into account. The modified decree altered the monetary liabilities: instead of Rs 50,000 payable to Faqir Chand and Rs 45,000 payable to Banwarilal, the decree stipulated that the amounts payable would be Rs 46,000 and Rs 41,000 respectively. The original award also contained a clause stating that the income‑tax for the year 1945‑46 had not yet been assessed and that all three parties would be equally responsible for that tax. The decree echoed this provision, noting that both the petitioner and the second party were each entitled to a further sum of Rs 4,000, but that the first party had deducted that amount from its share to meet its portion of the 1945‑46 income‑tax liability.

In the decree, the Court recorded that the amount of income‑tax for the year 1945‑46 was to be paid by all three parties in equal shares, and it observed that there was no difference between the award and the decree with respect to the monetary sums involved. The only distinction lay in the manner of payment. Accordingly, the schedule of instalments required the petitioner, Faqir Chand, to receive fifteen thousand rupees on 11 October 1948, followed by five thousand rupees on each of the dates 11 October 1949, 11 October 1950, 11 October 1951 and 11 October 1952, and finally one thousand rupees on 11 October 1953; the total amount due to him amounted to forty‑six thousand rupees, of which twenty‑six thousand had already been paid. The second party, Banwarilal, was required to receive five thousand rupees on 11 October 1948, seven thousand five hundred rupees on each of the dates 11 October 1949, 11 October 1950, 11 October 1951, 11 October 1952 and 11 October 1953, and one thousand rupees on 11 October 1953, bringing his total entitlement to forty‑one thousand rupees, of which fifteen thousand had been paid. The decree also stated that the award would not be operative concerning the haveli, and that the parties would pursue other remedies; otherwise, there was no material difference between the award and the decree.

On 27 December 1949, Banwarilal filed an application seeking execution of the decree for a defaulted instalment. In response, on 3 January 1950, Munshi Ram filed objections through an application allegedly supported by Order 47, Rule 1 and Sections 47 and 151 of the Code of Civil Procedure. Munshi Ram argued that the order converting the award into a rule of the Court after modification was void, beyond jurisdiction, invalid and contrary to law for three reasons: first, the original award had not been filed, and only the original, not a copy, could be modified; second, the award had not been properly stamped and the deficit duty and penalty had not been recovered, rendering the proceedings jurisdiction‑less; third, because the decree was an instrument of partition, it too needed to be stamped. The opposing party contested these submissions.

The Senior Sub‑Judge of the Ferozepore Court, by an order dated 3 March 1951, held that the loss of the original award rendered the copy admissible and that the decree was not passed without jurisdiction. Citing the decision in Dwarka Das v. Krishna Kishore, the Court noted that the parties had agreed that a compromise could be effected even after the award, and it concurred with that view. The Judge further held that the award constituted an instrument of partition and that there was a deficiency of stamp duty. He examined whether the decree, as an instrument of partition, required stamping, and concluded that it could not be acted upon unless either the award or the decree was properly stamped. Consequently, he rejected the execution application but added a condition that, after the appropriate stamp was affixed to the decree, the decree‑holder could file a fresh execution application.

Munshi Ram appealed this direction to the High Court of Punjab at Simla (Execution First Appeal No. 121 of 1951). Meanwhile, Banwarilal made a second application on 10 March 1951, depositing the necessary stamp papers. By an order dated 28 March 1951, the executing court impounded the decree and forwarded it to the Collector. Banwarilal challenged that order by filing Execution First Appeal No. 56 of 1951, while Munshi Ram also filed an appeal, although his appeal was not printed in the record. Both appeals were heard by a learned Single Judge of the High Court at different times, the first being the appeal of Banwarilal.

In this matter, the Court first examined Execution First Appeal No 56 of 1951, an appeal decided on 28 December 1951. The appeal was brought by Banwarilal challenging the order dated 28 March 1951 that had impounded the decree and forwarded it to the Collector. At that stage, Munshi Ram’s parallel appeal against the same impounding order had not been heard. The learned Single Judge treated Banwarilal’s appeal as a revision and held that the impounding order did not fall within the scope of section 47 of the Code of Civil Procedure. In his reasoning, the Judge stated that the Court was justified in refusing to proceed with the execution application of 3 March 1951, because once the decree‑holder applied for stamp duty and the stamp was duly affixed, the decree became a properly stamped instrument. He further explained that the proceedings initiated on the basis of the application dated 27 December 1949 had concluded on 3 March 1951 and could not be reopened without a fresh and proper proceeding, which had not occurred. Conversely, on 10 March, Banwarilal applied for the stamp duty to be allowed, the application was granted, and consequently there was no longer an unstamped decree in the Court’s file; had the Court complied with its own earlier directions, no unstamped decree would have been available for impoundment on 28 March 1951. The Judge rejected the argument presented by counsel for Munshi Ram, who contended that the decree was a nullity or unexecutable, observing that such a contention did not arise in the matter before the revision. Accordingly, the order that had impounded the decree was set aside.

Subsequently, the same Judge considered Execution First Appeal No 121 of 1951, filed by Munshi Ram against the direction contained in the order of 3 March 1951. By judgment dated 16 June 1952, the Judge held that Munshi Ram’s appeal was incompetent and declared that he would not intervene in a revision proceeding. It appears that Munshi Ram’s separate appeal against the 28 March 1951 impounding order was also heard, but it was dismissed without separately recorded reasons, presumably because that order had already been set aside by the decision on 28 December 1951. Against the operative orders, Munshi Ram filed two appeals under the Letters Patent. Letter Patent Appeal No 11 of 1952 challenged the order of 16 June 1952 issued in Execution First Appeal No 121 of 1951, while Letter Patent Appeal No 5 of 1952 contested the order in Banwarilal’s appeal decided on 28 December 1951. Both appeals were dismissed by a common judgment in Letter Patent Appeal No 5 of 1952 on 26 November 1952, and a brief separate order was also issued in Letter Patent Appeal No 11 of 1952.

The Court observed that the arguments presented by the present appellant differed from those previously before it, and consequently it was necessary to identify whether the specific point now raised had been earlier advanced, in what particular form, and at which procedural stage. The appellant contended that once a dispute had been referred to arbitration, an award obtained and filed in Court could not be the subject of a compromise under Order 23, Rule 3 of the Code of Civil Procedure, because the Arbitration Act permitted only the setting aside or modification of an award and contained no provision for recording a compromise. The Court noted that this contention had not been raised before the High Court or the subordinate Court. When the matter was before the Senior Sub‑Judge at Ferozepore, the Court had, relying on the Lahore High Court decision in Dwarka Das v. Krishna Kishore(1), conceded that the parties were entitled to enter into a compromise affecting the terms of the award and that a decree could be issued on the basis of an award thereby modified. The judgment of the Senior Sub‑Judge recorded the learned counsel for the judgment‑debtor as stating, “This principle of law is not disputed by the learned counsel for the judgment‑debtor, who, however, argues that it was not open to the parties to enter into a compromise regarding the terms of the award which was never produced in Court.” In the appeal filed by Munshi Ram against the decision of the Senior Sub‑Judge, no ground was raised that a compromise could not be recorded or that a compromise could not modify the award. The only objections advanced concerned the alleged deficiency of stamping on the award, its failure to be registered, the inadmissibility of secondary evidence of the award, and the claim that no decree could be passed on the basis of a copy produced as secondary evidence. A broader ground was also raised, stating that the decree was wholly without jurisdiction because the trial Court lacked inherent jurisdiction to pass such a decree. This broader ground related to the attack on the award itself, not to the present point of law. Accordingly, the Court found no reference to the present issue in either of the two orders issued by Kapur J., who then presided as the judge.

When the parties appealed to the Divisional Bench under the Letters Patent, the Court observed that no argument was raised that would bring out the present controversy. The sole objection presented to the Divisional Bench was that the Court lacked jurisdiction to order that the copy of the award be stamped, and that a decree passed on the basis of an unstamped award was a nullity and therefore could not be executed. Consequently, the point now urged did not appear in the judgment of the Divisional Bench against which the present appeal was filed. Moreover, even when an application for a certificate was made, the contested point was not listed among the grounds of appeal, and all the grounds then urged were included in the order refusing the certificate. It was only after a petition for special leave was filed before this Court that the point was introduced, accompanied by as many as eight separate grounds, none of which had been raised at any earlier stage. On this basis alone, the Court concluded that it should decline to consider the matter and that the appeal must be dismissed. The decree had never been questioned on the ground that it was a nullity, since it had been passed with the consent of the parties; it was now being characterised as a nullity, a characterization that could be raised only in execution proceedings. The Court therefore refrained from addressing the remaining objections, as the point had not been properly raised in the earlier proceedings.

In the present appeal, the issue that the decree could not be executed because the award was not stamped and the copy of the award was admitted as secondary evidence does not appear in the judgment of the Divisional Bench against which the appeal is filed. Even when an application for a certificate was made, the same point was not pleaded as a ground of appeal, and all the arguments that were raised at that stage are recorded in the order that refused the certificate. It was only after a petition for special leave was filed in this Court that the party introduced this new ground, together with as many as eight additional grounds that, as shown above, were never raised at any earlier stage. On the basis of this sole new ground, the Court should refuse to entertain the matter and dismiss the appeal. Moreover, the decree itself has never been challenged on this ground, since it was issued with the consent of the parties and therefore could scarcely be attacked as a nullity. The decree is now being described as a nullity on the theory that a decree may be questioned in execution only on the basis that it is a nullity. The Court therefore need not examine those objections further. Because the parties argue before us that there is a conflict of opinion among the High Courts on the question of whether a compromise entered into after an arbitration award has been filed can be the basis for a decree, the Court thinks it appropriate to resolve that question. Counsel for the appellant relies on the decisions in Rabindranath Chakrabarti v. Jnanendra Mohan Bhaduri, its approval by the Privy Council in Jnanendra Mohan Bhaduri v. Rabindranath Chakravarti, Dooly Chand Srimali v. Mohan Lal Srimali, Brindaban Chandra v. Kashi Chandra and Motandas v. Wadhumal, which hold that once an arbitration award is made the Court cannot record a compromise that modifies the award and cannot pass a decree incorporating the modified terms. The respondents rely on the authorities in Behari Lal v. Dholan Das, Dwarka Das v. Krishan Kishore, Attar Singh v. Bishan Singh and Fazal Ahmad v. Enayat Ahmad. In the Chakrabarti case, which was decided before the present Arbitration Act and was governed by the Arbitration Act of 1899, section 15 of that Act did not require the Court to pass a judgment or a decree because the statute contained no provision for a decree. When the award was filed in Court, it retained the force of a decree unless set aside, and was therefore executable. The Court held that it possessed no general jurisdiction to alter the award and that any decree passed modifying the award was beyond its jurisdiction and consequently a nullity that the executing Court could refuse to enforce. The rule was based on the absence of jurisdiction to pass a decree on an arbitration award.

In this case the Court observed that a decree could not be issued on an arbitral award unless the Court possessed the requisite jurisdiction, and that any decree issued without such jurisdiction would be a nullity. The same principle, the Court noted, continued to apply under the present Arbitration Act even though the contemporary procedure required the Court to pronounce a judgment in accordance with the award, after which a decree would automatically follow from that judgment. The Court explained that this principle was invoked because the Arbitration Act restricts the Court’s authority to modify an award to the specific situations enumerated in section fifteen. Section fifteen states that the Court may, by order, modify or correct an award only when (a) a portion of the award concerns a matter that was not referred to arbitration, and that portion can be separated from the rest without affecting the decision on the arbitrated issue; (b) the award is imperfect in form or contains an obvious error that can be corrected without influencing the decision; or (c) the award contains a clerical mistake or an error arising from an accidental slip or omission. In light of these statutory limits, the Court held that, as decided in several authorities, the Court cannot act beyond the scope of section fifteen or fashion its own decision, even if the parties have reached a compromise and have agreed to alter the award.

The Court further referred to the detailed discussion in Prafulla Chandra Karmakar v. Panchanan Karmakar, decided by Justice Chakravartti. In that case arbitration was referred while a partition suit was still pending, and after the arbitral award the parties entered into a compromise. Justice Chakravartti held that the Court could grant the parties leave to withdraw a submission made under section five of the Arbitration Act and, by superseding the arbitration agreement under section twelve‑two‑b, could pass a decree that reflected the terms of the compromise. However, the Judge emphasized that as long as the original submission remained in force, the Court’s jurisdiction was suspended; consequently the Court could not examine the facts of the compromise nor issue a decree that differed from the award. He pointed out that sections thirty and thirty‑two provided the exclusive mechanisms for setting aside or varying an award, and no other method was permissible. The Judge observed that the precise issue presented was not decided in the earlier decision of Dooly Chand Srimali v. Mohan Lal Srimali, and noted that his observations applied only where the Court intervened in an ongoing suit. He further remarked that it was unnecessary to consider the position where there was no Court intervention. Finally, the Judge observed that the Arbitration Act did not list a compromise between the parties as a ground for setting aside or modifying an award, and therefore declined to apply Order twenty‑three.

R.3 of the Code of Civil Procedure was considered by the Court on the basis of section 41 of the Arbitration Act, which states that the provisions of the Code of Civil Procedure shall apply to all proceedings before the Court and to all appeals under the Arbitration Act. The Court gave three reasons for refusing to apply R.3 in this context. The first reason was that section 41 was headed “Subject to the provisions of the Act” and therefore its operation was subject to sections 15, 23(2) and 32 of the Arbitration Act. The Court also expressed the view that section 41 merely incorporated the procedural parts of the Code of Civil Procedure into proceedings under the Arbitration Act, and that Order 23, Rule 3 applied only to suits; consequently it could not be extended to proceedings on awards, which the Court held were not suits. According to the Court, proceedings on an award involved solely the consideration of the award itself, and any modification of the award within the limits permitted by the Act was distinct from “a compromise of the entire dispute between the parties apart from and independently of the award.” The Court therefore concluded that such a compromise would amount to going beyond the scope of the award.

The same position was reiterated in subsequent authorities, but it was more fully articulated in Motandas v. Wadhumal, where the Court held that proceedings on an award were not a suit even when those proceedings were formally instituted as a suit. Justice Chakravartti observed that this doctrine produced an anomalous result. He warned that it would be “strange if the law also were that once a reference has been made to arbitration, the parties can no longer even settle their dispute or bring the settlement before the Court, but must continue the strife till a decree on the basis of the award is made and compromise, if at all, thereafter.” He explained that a suit is merely a dispute, the Court’s function is to decide that dispute, and arbitration is an alternative mechanism for decision‑making. To forbid the parties, after a reference to arbitration, from terminating their dispute by mutual agreement and obtaining an agreed decree from the Court would be “extraordinary,” especially because no public‑policy considerations were involved. Nevertheless, he noted that if the Arbitration Act contained such a prohibition, it must be enforced.

Justice Chakravartti therefore proposed that a compromise between the parties, although not listed in the Arbitration Act as a ground for superseding a reference or setting aside an award, could be treated as a “good cause” for revoking the submission under section 5 of the Arbitration Act. In contrast, the Lahore High Court, in more than one decision, held that a compromise is permissible after an award has been made and that the Court may pass a decree under Order 23, Rule 3 of the Code of Civil Procedure to modify the award in accordance with the compromise. Those decisions had already been cited earlier. No special reasoning was provided in those cases, and they were all based on the decision in Behari Lal v. Dholan Das.

The judgments cited in the earlier authorities all derived their reasoning from the decision in Behari Lal v. Dholan Das. In Dwarka Das v. Krishan Kishore, the court recorded at page 124 that counsel for the petitioner, Mr. Tekchand, argued that the parties possessed no authority to alter the arbitral award and that the court could issue a decree only on the basis of the award as rendered by the arbitrator. The court, however, observed that when the original award was valid as to Jai Gopal, it could not be deemed invalid merely because it was subsequently modified in his favour. Referring again to Behari Lal v. Dholan Das, the court noted that the late Chief Justice Rattigan, J., had held that the parties were competent to settle the proceedings under section 525 of the Civil Procedure Code by altering, amending, or adding to the award. An additional rationale was offered in Attar Singh v. Bishan Singh, wherein it was emphasized that the Arbitration Act enumerates the powers of the court to interfere with awards but does not forbid a party from withdrawing from a claim. In that case, after the award was made, one party volunteered to be bound by a special oath taken by the other party, and following the oath, the court passed a decree. The present court expressed the view that cases decided under the Arbitration Act of 1899 provide little guidance for the present issue. It pointed out that, under that older Act, an award itself was executable as a decree, and the court was not required to render a separate judgment or to pass a decree. Consequently, if the court then lacked authority to pass a decree at all, it could certainly not pass a decree that modified the award even with the parties’ consent. The pivotal question therefore became whether, now that the court does have the power to pass a decree, it may disregard a compromise reached by the parties and issue a decree contrary to that compromise. The Privy Council, in Lala Khunni Lal v. Gobind Krishna Narain, affirming the decision of the High Court of the North West Provinces reported in Lalla Oudh Behari Lall v. Mewa Koonwer, held that the courts have a duty to uphold and give full effect to a compromise. Moreover, courts have historically allowed compromises that extend beyond the immediate subject‑matter of the suit. In Hemanta Kumari Debi v. Midnapur Zimindari Company, the Privy Council observed that a proper and effective way of implementing the terms of Order 23, Rule 3, would be either to cause the decree to reproduce the entire agreement and then conclude with an order relating to the portion that formed the subject of the suit, or to annex the agreement as a schedule to the decree; in either approach, although the operative part of the decree would be limited to the actual subject‑matter of the then‑existing litigation, the decree as a whole would incorporate the complete agreement.

In the case before the Court, the decree that was issued incorporated the entire agreement between the parties, so that the decree as a whole contained the compromise. Although the decree might not have been enforceable outside the lands that were the subject of the suit, that limitation did not stop the contents of the decree from being admitted as evidence. The Court recognized that the Privy Council decision on this point had created divergent views in India, yet it provided a useful guide for resolving the present problem while avoiding the inconsistencies highlighted by Justice Chakravartti. The Court observed that, under the Arbitration Act, a party could challenge an award only in the manner prescribed by the statute. The statutory powers of the Court were limited to accepting an award when no objection was raised, issuing a decree that gave effect to the award, or, alternatively, superseding the reference, revoking, modifying, or remitting the award for further consideration as the Act allowed. The Act, however, did not forbid the parties from ending their dispute by a different method. When the parties chose to settle their differences through a compromise that dealt with matters beyond the original dispute but inseparable from it, the Court could not be expected to allow the dispute, already settled, to re‑emerge as a new cause of litigation. If the parties were dissatisfied with the award and wished to replace it with a compromise covering new issues, the Court could supersede the original submission and permit the parties to effect their agreement outside the framework of the Arbitration Act. In such a situation, the new compromise could serve as a solid basis for superseding the reference and revoking the award, as Justice Chakravartti had explained. When the parties altered the operation of the award without discarding it altogether, the unaltered portion of the award continued to bind them and could not be revoked.

In the circumstances described, the Court could adopt one of two approaches that the Privy Council had outlined in the Hemanta Kumari case. If the entire subject‑matter of the compromise lay within the scope of the original reference, the Court could incorporate the modified award into the operative part of the decree. Conversely, if the subject‑matter extended beyond the reference, the Court could limit the operative part of the decree to the portion of the award that had been accepted, and place the remaining terms of the settlement—provided they were severable and fell within the original reference—in a schedule annexed to the decree. The operative portion would be enforceable as a decree, while the scheduled agreement would be enforceable as a contract, with the decree serving as evidence of the contract but not as a decree‑based enforcement mechanism. The Court held that the authority to record such an agreement and to make it part of the decree, whether by inclusion in the operative clause or by attachment in a schedule, followed from the application of the Code of Civil Procedure, as well as from sections 41 of the Arbitration Act and 141 of the Code.

The judgment noted that the provisions of the Code of Civil Procedure, specifically section 141, together with section 41 of the Arbitration Act, govern the situation. It further observed that when a reference is made to arbitration without the court’s intervention, the court does not possess a general jurisdiction over the subject‑matter, unlike a reference that arises within a pending suit. In such a non‑intervention reference, if the submission is superseded, the court has no further authority to act. Conversely, when the reference occurs in a suit that is already before the court, the court must continue to conduct the suit and must give effect to any compromise reached, in accordance with the law. In the present matter, the decree that incorporated the arbitral award was correctly framed. The award itself allowed for an adjustment concerning income‑tax, directing that the tax, once assessed, would be shared equally among the three parties. The compromise that the parties later entered into merely operationalised this direction by reducing the amounts payable by the two respondents by Rs 4,000 each. The compromise did not go beyond the terms of the award; rather, it was a direct consequence of the award. It supplied the quantification of the income‑tax that the award had indicated would be determined at a later stage. The amounts after adjustment were the same as the original sums payable, minus the tax component. The only variation lay in the mode of payment: instead of three instalments per quarter, the parties agreed to a larger number of instalments spread over the year. The court found that this variation was a matter on which the parties were free to agree and that the court could incorporate their agreement into the operative part of the decree. The judgment further held that nothing in the Arbitration Act prevents the court from taking note of an agreement of this nature, and therefore the decree could not be characterised as a nullity on that ground. Consequently, the appeal was dismissed with costs ordered against the appellant.