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

Citation: [2022] 4 S.C.R. 647 · Decided: 11-05-2022 · Supreme Court of India · Bench: SANJIV KHANNA · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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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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648
SUPREME COURT REPORTS
[2022] 4 S.C.R.
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 decide

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