R K THIRUMALAI CHETTIAR Vs. KNNANJAYYA GOWDER

JUDGEMENT

(1.) This appeal arises out of an order on an application to file an award as decree. The award proceeded on a reference to arbitration made outside the Court and the Court has on the application of the appellant passed a decree in terms of the award except for one stipulation which has been regarded as penal. The arbitration arose out of a dispute between partners and the reference was in the following terms: As we cannot conduct the said shop jointly, we have completed the accounts relating to the business in respect of the same from 1 April 1934 till 30 April 1935 and have delivered the same to the pinchayatdars. Only agreeing to abide wholeheartedly by the award which you, the panchayatdars, may pass directing the delivery of the said company to one of the partners and also the rules and regulations you may frame in connexion therewith, we have executed the muchilika signing hereunder.

(2.) As a result of this reference the arbitrators passed an award determining the amounts due by and from each of the partners and directing that the business should be handed over to one of the partners and that the other partners should not only pay what was due by them but should execute release deeds in favour of the partner who is to have the control of the business. They stipulated for a time within which these obligations should be carried out and in the case of each of the partners upon whom obligations were cast they provided for some payment by way of damages in the event of default. Each of the present respondents was to pay a sum of Rs. 1000 in default of his paying the amount found due from him and executing the release deed. The learned subordinate Judge, recognizing that there was no objection at the time when the award was passed and that the written statements of the contesting defendants only disputed the validity of the award to the extent of the alleged penalty, first passed a decree for the enforcement of the award so far as there was no objection. Then after some argument he took a memorandum from the plaintiff's vakil agreeing to allow the Court to fix a reasonable sum in lieu of the damages of Rs. 1000 payable by each of defendants 1 and 2 (respondents here). The learned subordinate Judge - to my mind quite rightly - held that he had no jurisdiction to estimate the amount of damages and fix a sum other than that stipulated for in the award. He proceeded however to consider the validity of this term of the award and came to the conclusion that it went beyond the terms of the reference in so far as it provided, what the learned Judge found to be a penalty.

(3.) Now, the powers of a Court in enforcing an award on arbitration without the intervention of Court are laid down in paras. 20 and 21 of Schedule 2, Civil P.C. Paragraph 21 requires the Court to pronounce judgment according to the award where no ground such as is mentioned in para. 14 or para. 15 is proved; and it is, I think, established that if the award contains any provision which is objectionable with reference to para. 14 or para. 15, and if that provision is severable from the rest of the award, the Court can enforce the award so far as it is unobjectionable. We are not now concerned with para. 15 there being no allegation of misconduct, fraud or such matters. Paragraph 14(a) deals with omissions from the award, with which we are not concerned, and with the determination of matters not referred to arbitration, which is the ground alleged here for challenging the award. There has also been some reference to Clause (c) which relates to an objection to the legality of the award apparent on the face of it. I do not think myself that Clause (c) has any application to the facts of the present case. A stipulation for liquidated damages in case of default is not per se illegal. The most that can be said is that if a Court which has to adjudicate on a contract finds that with reference to the terms of Section 74, Contract Act, the amount stipulated in the contract is in excess of the reasonable compensation for breach of the contract, the Court can reduce the damages to what it considers to be reasonable. It follows therefore that this provision whereby defendants 1 and 2 are each required to pay Rs. 1000 if they fail to pay what is due from them and to release their interest in the business within the stipulated time, is not necessarily an illegal stipulation. The most that can be said is that it may provide by way of damages for more than what the Court, if it had jurisdiction to go into the matter, would be prepared to award under Section 74, Contract Act. As I have already indicated, to my mind the Court has no jurisdiction to go into what is the proper amount of damages and cannot interfere with this figure embodied in the award unless it can be shown to be a decision illegal on its face (which in my opinion it cannot) or unless it can be shown to go beyond the scope of the reference to arbitration.