VADILAL CHATRABHUJ GANDHI Vs. THAKORELAL CHIMANLAL MUNSHAW

JUDGEMENT

(1.) THE Exchange Bank of India and Africa, Ltd. , was incorporated on 30-4-1942. It suspended payment on 2-5-1949, and an order of winding up was made on 24-6-1949, and the Official Liquidator was appointed liquidator. On 12-9-1951, the Official Liquidator took out a misfeasance summons against eight directors and two auditors calling upon them to pay various sums of money as being due by them on account of misfeasance committed by them. This summons came on for hearing before Tendolkar J. on 3-11-1952. On 4-11-1952, a compromise was arrived at between six directors and the compromise was to the effect that these directors were prepared to pay a total sum of Rs. 20 lakhs to the Liquidator in such proportion or manner as Sir Jamshedji Kanga shall in his absolute discretion decide as a valuer and not as an arbitrator after giving each of the directors a summary hearing. When this compromise was reported to counsel for the Liquidator, he insisted on the liability of all the directors being joint and several. He was prepared to accept a sum of Rs. 20 lakhs, but he did not want the liability to be fixed by Sir Jamshedji Kanga to be several, and he wanted each of the directors to be liable for the whole amount. This anxiety on the part of the counsel for the Liquidator arose from the fact that he had serious doubts as to the solvency of one of the directors who (was Anandji, respondent 3 to the summons. Thereupon the appellant, who was respondent 8, Vadilal Chatra-bhuj Gandhi, offered in Court to guarantee the liability of Anandji to pay such amount as was fixed by Sir Jamshedji Kanga. Mr. Seervai, counsel for the Liquidator, was satisfied with this offer and the matter was adjourned in order that the Liquidator should get the sanction of the Company Judge to this compromise. The Liquidator then made a report to Coyajee J. who was the Company Judge to whom this particular company was assigned and who had made the winding up order, and Coyajee J. sanctioned the compromise on 6-11-1952, and on November 7 Sir Jamshedji Kanga gave his decision fixing the amounts which each of the directors was liable to pay, and he fixed the amount of the appellant at Rs. 2,30,000 and he fixed the amount in respect of Anandji at Rs. 3,60,000. The appellant then took up the contention that there was no binding compromise and that he was neither liable to pay the amount fixed by Sir Jamshedji Kanga, nor was he liable to guarantee the amount fixed in respect of Anandji. A notice of motion was then taken out by Messrs. Amarchand and Mangaldas, attorneys for respondent 4, to record the compromise and Tendolkar J. recorded the compromise and passed an order in terms of that compromise. It is from that decision of Tendolkar J. that Vadilal has now come in appeal.

(2.) THE first contention that has been raised before us by the Advocate General is that the decision of Sir Jamshedji Kanga constituted an award and that award could only be given effect to in the manner provided under the Arbitration Act and that a decree could not be taken on that award by having a compromise recorded. In order to determine this point we have to consider what Sir Jamshedji Kanga had to do in order to fix the liability of each of the directors. If a dispute is referred to a person and if a person decides that dispute and in deciding that dispute he holds a judicial inquiry and comes to a judicial decision, then undoubtedly that decision would constitute an award. On the other hand if a matter is referred to a person and he is not called upon either to hold a judicial inquiry or to give a judicial decision, but it is permissible to him to rely on his own skill, knowledge or experience in order to arrive at a particular decision, then the decision would not be an award. The authorities have made a distinction between what is known as a valuer and an arbitrator, but there is a third category which may consist of persons who are neither arbitrators nor valuers, and the third category consists of persons who might be broadly denned as persons who are discharging functions other than those of an arbitrator. In order to decide whether Sir Jamshedji Kanga was to act as an arbitrator or not, obviously we must first look at the document itself which referred to him the particular question with regard to the allocation of liability to the different directors. It is a commonplace that the intention of the parties must be primarily gathered from the document which purports to express that intention, and when we turn to this document the first significant fact which strikes us is that the parties clearly intended that Sir Jamshedji Kanga should decide the particular matter as a valuer and not as an arbitrator. The Advocate General says that the mere description of Sir Jamshedji Kanga as a valuer will not make any difference to the real decision, if in fact he acted as an arbitrator and not as a valuer. There the Advocate General is perfectly right. But the fact that the parties had a clear conception that Sir Jamshedji Kanga should not give a judicial decision is apparent from the fact that they wanted him to act as a valuer and not as an arbitrator. We are not dealing here with laymen drafting a particular document. It is in evidence that the document was drafted by attorneys and we take it that the attorneys knew their business. But what is more important in this document and more significant is the nature of the decision which Sir Jamshedji Kanga had to give and which is made clear in the document itself. Whatever Sir Jamshedji Kanga had to decide, he had to decide in his absolute discretion. It is clear, therefore, that the decision of Sir Jamshedji Kanga was not to be a judicial decision. A Judge cannot decide according to his discretion; a Judge is bound by rules of evidence; he is bound not to travel outside the record and he must decide according to certain set rules and not permit his discretion to affect his decision. But in this particular case Sir Jamshedji Kanga was given unfettered and unlimited discretion to decide as he liked, and in our opinion it is clear that once a person is permitted to give a decision which is not a judicial decision, that decision can never be considered as an award. The most important characteristic of an award is that it must emanate from a judicial determination. An award must be the result of a judicial decision, and when you have a decision which is the result of a discretion and an absolute discretion exercised by a person, that decision cannot in the very nature of things be an award. The Advocate General had laid considerable emphasis on the fact that under this compromise Sir Jamshedji Kanga had to give each of the parties a summary hearing and the Advocate General says that this provision clearly indicates that there had to be a judicial inquiry before Sir Jamshedji Kanga. Now, even assuming that Sir Jamshedji Kanga was bound to hear the case of each of the parties before he gave his decision, the mere fact that an inquiry had to be held is not sufficient to make the ultimate decision a judicial decision. We must have not only a judicial inquiry, but we must also have a judicial determination. Even assuming in favour of the Advocate General that the compromise provides for a judicial inquiry, it definitely does not provide for a judicial decision. It is not sufficient for parties to say that the person whom they have appointed should observe the rules of natural justice and should hear the parties. They must further provide that he must decide as a Judge and not as a valuer or as a person other than an arbitrator.

(3.) TURNING to the Authorities on which the Advocate General has relied, the leading case is the one reported in -- 'in re Cams-Wilson and Greene', (1886)- 18 QBD 7 (A ). Lord Esher, M. R. , at page 9, lays down the test which should be applied in order to decide whether a person acts as an arbitrator or not. This is what the Master of the Rolls says :