Rikhabdas vs Ballabhdas And Others

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 144 of 1960

Decision Date: 16 November 1961

Coram: A.K. Sarkar, P.B. Gajendragadkar, K.N. Wanchoo

Rikhabdas versus Ballabhdas and Others was decided by the Supreme Court of India on 16 November 1961. The judgment was authored by Justice A K Sarkar, and the bench was composed of Justices A K Sarkar, P B Gajendragadkar and K N Wanchoo. The petitioner was Rikhabdas and the respondents were Ballabhdas and others. The official citation of the case is 1962 AIR 551 and 1962 SCR Supl. (1) 475. The case is recorded in the citation index as R 1987 SC 841. The matters under consideration involved the filing of an arbitration award in court without the required stamp, the court’s authority to remit such an award to the arbitrator, and the application of Sections 13(d), 14(1), 15(b) and (c), 16(1)(c) and 20 of the Arbitration Act, 1940 (often referred to as the Arbitration Act, 1910) together with Section 151 of the Code of Civil Procedure, 1908. The provision of the Arbitration Act, 1910, was cited as (10 of 1940). The case was presented under civil appellate jurisdiction as Civil Appeal No. 144 of 1960, arising by special leave from the judgment and order dated 26 July 1957 of the Madhya Pradesh High Court in Civil Revision No. 966 of 1955. Counsel for the appellant included B R L Iyengar and K P Bhatt, while the respondents were represented by G S Pathak, S N Andley, Rameshwar Nath and P L Vohra.

The headnote records that an arbitration agreement had been filed in court pursuant to Section 20 of the Arbitration Act, 1940, and that an order of reference was consequently made. The arbitrator, after entering upon the reference, issued his award in court. The award, however, was submitted without the statutory stamp required by law. When an objection was raised that a judgment could not be rendered on an unstamped award, the trial court responded by ordering the award to be remitted to the arbitrator for re‑submission on duly stamped paper. The Nagpur High Court, on revision, held that the absence of a stamp constituted an illegality apparent on the face of the award and therefore could be remitted under Section 16(1)(c) of the Arbitration Act. The Supreme Court disagreed, holding that an unstamped award could not be remitted under that provision because the lack of stamp is a defect external to the arbitrator’s decision and does not amount to an illegality apparent on its face within the meaning of the section. The Court disapproved the earlier decisions in Ramkumar v. Kushalchand, A I R 1928 Nag 166 and Lakshmichand v. Kalloolal, 1956 N L J 504, while approving Nani Bala Saha v. Ram Gopal Saha, A I R 1945 Cal 19. Further, the Court observed that once an award is made the arbitrator becomes functus officio, and consequently Section 151 of the Code of Civil Procedure does not empower the court to direct the arbitrator to prepare a fresh award on proper stamp paper. The Court relied on Mordue v. Palmer, (1870) L R 6 Ch App 22, and expressed doubt – “dubitante” – as to whether the fees and charges mentioned in Section 14(1) of the Arbitration Act, 1940, include the stamp duty payable on the award. The judgment, delivered by Justice Sarkar, began by restating that an arbitration agreement had been filed under Section 20 of the Arbitration Act, 1940, and that an order of reference had been made, after which the arbitrator entered upon the reference and made the award.

In this case, the arbitrator filed his award in the court on July 14, 1955. The award dealt with the partition of certain properties belonging to the wife and children of a person named Bhairon Bux. However, the award was neither stamped nor registered. A party raised an objection to the court passing a judgment based on such an unstamped and unregistered award. In response to that objection, the trial court issued an order directing the arbitrator to resubmit the award on properly stamped paper and to have it registered before it could be placed before the court again. The order was challenged by filing a revision petition before the High Court at Nagpur. The single judge who heard the revision petition held that the award indeed needed to be stamped. Nevertheless, the judge expressed the view that the award could not be sent back to the arbitrator under section 16 of the Arbitration Act, because that section is the only provision that authorises a court to remit an award to an arbitrator. The judge noted that an earlier decision of the Nagpur High Court in Ramkumar v. Kushalchand (1) had held that an unstamped award could be remitted to the arbitrator under paragraph 14 of Schedule I to the Code of Civil Procedure, with a direction to rewrite the award on stamped paper and to resubmit it to the court. The judge observed that the language of paragraph 14 of the Code has now been substantially incorporated in section 16 of the Arbitration Act. The trial judge had relied on that earlier High Court decision, but the single judge was apparently dissatisfied with the correctness of the Ramkumar judgment and therefore referred three questions to a larger bench of the High Court for determination. The three questions referred were: first, whether an award made on a reference by the court under section 20 of the Arbitration Act is chargeable to stamp duty; second, whether such an award is compulsorily required to be registered when it concerns the partition of immovable property valued at one hundred rupees or more; and third, whether the court possesses power, under section 16(1)(c) of the Arbitration Act of 1940 or otherwise, to remit an award to the arbitrator or umpire for the purpose of having it stamped and/or registered. The matter was subsequently heard by a division bench consisting of two judges. Both parties concurred before the bench that the award needed to be stamped, thereby settling the first question. The judges decided that it was not necessary at that stage to answer the second question concerning registration. Consequently, they addressed only the third question, and they answered it affirmatively, holding that an unstamped award constitutes an illegality apparent on its face and therefore falls within section 16(1)(c) of the Arbitration Act, permitting the court to remit the award to the arbitrator for stamping.

In that case the Court said that, following the decision in Lakhmichand v. Kalloolal, the act of copying the award onto a stamped sheet of paper was a purely ministerial step and that preparing the award did not remove the arbitrator’s power to make a copy on the required stamped paper. The Court also endorsed the reasoning in Ramkumar v. Kushalchand. The present appeal challenged the judgment of the Division Bench, and the only point put forward at the hearing was whether the Division Bench’s answer to the third question was correct. The Court then reproduced the wording of section 16(1)(c) of the Arbitration Act, 1940, which permits a court to remit an award or any matter referred to arbitration to the arbitrators or umpire for reconsideration when an objection to the legality of the award is apparent on its face. The Court concluded that the Division Bench had erred. It explained that section 16 allows a remittance only for the purpose of reconsideration, not for merely rewriting the award on stamped paper. Reconsideration, the Court held, necessarily involves a fresh examination of matters already before the arbitrators, and such examination can be limited only to issues that fall within the scope of the arbitration agreement. Consequently, reconsideration can address only the merits of the award; it does not encompass the mechanical act of re‑drafting the award on a stamped sheet. The Court quoted the observation of Mitter, J. in Nani Bala Saha v. Ram Gopal Saha, noting that clause (c) of section 16(1) “means this and nothing more: namely, that where the court finds an error of law in the award itself or in some document actually incorporated therein… it can remit the award to the arbitrator for reconsideration.” The Court further observed that a defect such as lack of registration is external to the award and therefore is not covered by clause (c); the same reasoning was applied to a lack of stamp.

Respondent counsel argued that section 14(1) of the Arbitration Act imposed on the arbitrator a duty to inform the parties of the amount of stamp duty payable on the award. The Court reproduced the text of section 14(1), which requires arbitrators or the umpire, after making their award, to sign it and give written notice to the parties of the making and signing of the award and of the amount of fees and charges payable in respect of the arbitration and award. The Court stated that it could not see how this provision could support the order that had been made. Section 14(1) merely obliges the arbitrators to notify the parties of the fees and charges, and even if the term “charges” were interpreted to include stamp duty, the provision would at most justify an order directing the arbitrators to provide that information. It would not justify an order requiring the arbitrators to rewrite the award on a stamped paper and resubmit it to the court. The Court expressed serious doubts that the “fees and charges” mentioned in section 14(1) encompass stamp duty. Moreover, Section 17 of the Stamp Act requires stamping at the time of execution, whereas section 14(1) of the Arbitration Act deals with the period after the award has been signed, i.e., after its execution. Therefore, the Court concluded that imposing a duty on the arbitrators to inscribe the award anew on stamped paper was beyond the scope of their statutory obligations.

The Court examined how section 14(1) of the Arbitration Act could support the order that had been made in the present matter. That provision merely obliges arbitrators, after they have made and signed an award, to give the parties written notice of the award’s making and signing and of the amount of fees and charges payable in respect of the arbitration and the award. Even if the word “charges” were interpreted to include any duty required for stamping the award, the provision at most authorises an order directing the arbitrators to furnish the parties with that information. It does not empower a court to command the arbitrators to re‑inscribe the award on fresh stamped paper and to resubmit it to the court. The Court expressed serious doubt that the “fees and charges” contemplated in section 14(1) encompass stamp duty payable on the award. Section 17 of the Stamp Act mandates that stamping be effected at the time of execution. Under section 14(1), the arbitrators are required to disclose the cost information only after the award has been signed, which itself constitutes the execution. It is not the arbitrators’ duty, under the Act or otherwise, to determine the stamp costs themselves. Consequently, it is difficult to understand how “charges” in that section could be read to include stamp duty, though the Court did not deem it necessary to give a final opinion on that point.

Counsel for the respondent further argued that, even if the case fell outside the scope of section 16(1)(c) of the Arbitration Act, the order could be justified under section 151 of the Code of Civil Procedure, which preserves a court’s inherent power to make such orders as may be necessary for the ends of justice. The Court noted that section 41 of the Arbitration Act makes the provisions of the Code of Civil Procedure applicable to proceedings before a court under the Arbitration Act. Nevertheless, once an arbitrator has made his award, he becomes functus officio and may not, of his own authority, rectify any mistake. The Court cited the authority of Mellish, L.J., in Mordue v. Palmer, observing that an arbitrator who has signed a document as his award is functus officio and cannot remedy any error of his own accord. In the present case, the award had already been rendered, rendering the arbitrator functus officio, and it was this award that required stamping. Section 151 of the Code cannot be used to direct the arbitrator to make a fresh award, as that would contravene well‑established principles of arbitration law. Moreover, producing another stamped copy would be useless, because such a copy would not constitute the award, and no court action could be founded upon it. Accordingly, the Court concluded that the order could not be supported by section 151 of the Code. The passage from Russell on Arbitration was then considered in the next portion of the judgment.

The Court referenced the passage from the fourteenth edition of Russell on Arbitration, page three hundred twenty‑five, which explains that the usual practice in preparing an arbitration award is to produce two copies. One copy is signed by the arbitrator and then becomes the original award, which is delivered to the party who obtains the award. The second copy is retained for the other parties should they request it. The passage further states that the original award must be duly stamped before it can be used for any purpose, but that the arbitrator is under no obligation to affix the stamp and ordinarily does not do so. The Court observed that the final paragraph of that quotation is omitted in the sixteenth edition of Russell’s work, perhaps because, in England, the requirement of stamping an award was removed by section thirty‑five of Schedule eight of the Finance Act, nineteen forty‑nine, which was enacted after the fourteenth edition was published. The Court then noted that counsel for the appellant attempted to justify the lower court’s order by invoking sections thirteen(d) and fifteen(b) and (c) of the Arbitration Act. A simple reading of those provisions shows that the order cannot be based on them. Section thirteen(d) permits correction of clerical mistakes or accidental slips in the award, a category that does not include the failure to stamp the document. Moreover, section thirteen is merely an enabling provision that grants certain powers to the arbitrator; it does not compel the arbitrator to exercise those powers. Section fifteen concerns a court’s authority to modify or correct an award, and the Court pointed out that in the present proceeding the court did not claim to be exercising that power.

Consequently, the Court concluded that the Division Bench was erroneous in directing that the award be remitted to the arbitrator for a rewrite on stamped paper and subsequent resubmission to the court. The appeal was therefore allowed. The orders of the lower courts that had remitted the award were set aside, and the appellant was awarded costs throughout the proceedings. The Court further emphasized that nothing in its judgment should be taken to affect any legal right of the parties to pursue, if such rights exist, measures to cure the defect caused by the award being on an unstamped paper. The appeal was thus allowed.