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AWARD – REGISTRATION COMPULSORY.
“So in express words it purports to create rights in immovable property
worth above Rs.100/- in favour of the appellant. It would accordingly
require registration under S.17, Registration Act. As it is unregistered, the
Court could not look into it. If the court could not, as we hold, look into it,
the Court not pronounce judgment in accordance with it. Sec. 17,
Arbitration Act presupposes an award which can be validly looked into by
the Court.
FRAUD
If an award was not genuine, but was collusive and sham, the court
will not and in fact can not make it a rule of the court. As noticed above,
there should be a dispute, there should be an agreement to refer the dispute
to arbitration, there should be reference to arbitration, there should be an
adjudication or decision by the arbitrator after hearing parties, for a valid
arbitration. If the parties had already settled their disputes and the arbitration
award was only a ruse to avoid payment of stamp duty and registration with
respect to a sale deed and declare a title in persons who did not have title
earlier, then the entire proceedings is sham and bogus. In fact, C.B. Sharma
was not really an arbitrator, nor the proceedings before him were arbitration
proceedings and the awards were not really arbitration awards. If all these
facts which have a bearing on the making of the award and the validity of
the award are suppressed before the court and the court was misled into
making decrees in terms of the awards, necessarily the proceedings are
fraudulent and amounted to committing fraud on the court.
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 7085-7086 OF 2011
[Arising out of SLP (C) Nos. 10049-10050 of 2010]
Ramesh Kumar & Anr. … Appellants
Vs.
Furu Ram & Anr. etc. … Respondents
J U D G M E N T
R.V.RAVEENDRAN, J.
Leave granted. For convenience parties will also be referred by their
ranks in the suit or by name.
2. The appellants – two brothers, are the co-owners with equal shares, in
lands measuring in all 98 Kanals and 19 marlas situated in village Udana,
Tehsil Indri, District Karnal. They entered into an agreement to sell the said
lands to the sons of Furu Ram and Kalu Ram (brothers) the respective first
respondent in these two appeals, on 18.10.1991 for a consideration of
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Rs.14,22,000/- and received Rs.1,00,000 as earnest money. As per the terms
of the agreement, the balance was to be paid by the purchasers at the time of
registration of the sale deed and the sale was to be completed by 31.1.1992.
The case of appellants (Ramesh Kumar & Naresh Kumar)
3. The respondents were not in a position to pay the balance of the sale
consideration and therefore failed to get the sale completed by 31.1.1992.
The respondents requested for refund of the earnest money of Rs.100,000/-.
The appellants were not willing to return the earnest money in view of the
breach by the respondents. There was a panchayat in that behalf wherein it
was decided that the appellants should permit the respondents to cultivate
their said lands for a period of one and half years without any rent in
satisfaction and discharge of the claim for refund of Rs.100,000/-. In
pursuance of the said panchayat settlement, appellants delivered possession
of the suit lands to the respondents. The respondents represented that they
would reduce the terms of the said settlement into writing and requested the
appellants to come to Kurukshetra to sign some papers. The appellants
trusted the respondents as it was a panchayat settlement and went to
Kurukshetra, and signed the papers given by the respondents, under the
bonafide belief that they were signing papers relating to the terms of the
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aforesaid settlement. The respondents also asked the appellants to appear in
court and confirm the same. The appellants accordingly went to the court
and nodded their assent when asked whether they were agreeable for the
settlement.
4. Some months thereafter, a suit was filed against appellants in June
1992 by one Lal Singh and others claiming pre-emption. During the
pendency of that suit, the appellants learnt that the respondents had obtained
a mutation in their favour on the basis of some decrees obtained by them
from the court of Senior Sub-Judge, Kurukshetra. On verification, the
appellants were surprised to learn that consent orders had been passed by the
court of Sr. Sub-Judge, Kurukshetra on 30.3.1992 in C.S.No.366/1992 and
C.S.No.367/1992, directing decrees be drawn in terms of arbitration awards
dated 13.3.1992 made by one Chandra Bhushan Sharma, Advocate,
Kurukshetra, appointed as per reference agreements dated 12.3.1992.
5. According to appellants, the agreements dated 12.3.1992, the
arbitration awards dated 13.3.1992, the consent decrees dated 30.3.1992 and
the mutations in favour of respondents were all illegal, null and void and
non-est, being the result of fraud and misrepresentation on the part of
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respondents. According to appellants, the allegations in the said agreements,
awards and as also the plaints in CS Nos.366 and 367 of 1992 that appellants
had borrowed Rs.8 lacs from Furu Ram and Rs.8 lacs from Kalu Ram
agreeing to repay the same with interest at 2% per month, that they had
given their lands to Furu Ram and Kalu Ram as they were not able to repay
the two loans of Rs.800,000/- each, were all false. They alleged that they had
not engaged any counsel for appearance in CS Nos.366 and 367 of 1992, nor
signed any written statements, nor participated in any arbitration
proceedings, nor made any statements agreeing for making decrees in terms
of any award. The appellants claimed that they only signed some papers
which respondents had represented to be documents relating to giving their
lands on licence basis for one and half years instead of returning the earnest
money deposit of Rupees One Lakh. The appellants therefore filed two suits
on 11.11.1993 (renumbered as CS No.63 and 64 of 1997) in the court of the
Civil Judge, Junior Division, Kurukshetra, against Furu Ram and Kalu Ram
respectively for a declaration that the judgments and decrees dated
30.3.1992 in C.S.No.366/1992 and 367/1992 (by which the awards dated
13.3.1992 were made the rule of the court), the agreements dated 12.3.1992,
the awards dated 13.3.1992, the proceedings in C.S.No.366/1992 and
367/1992 and the mutations in pursuance of the said decrees were all null
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and void, non-est and not binding on them and for the consequential relief of
possession of the suit properties. In the said suits (CS No.63 of 1997 and 64
of 1997) the arbitrator `C.B. Sharma’ was impleaded as the second
defendant.
The case of respondent (Furu Ram and Kalu Ram)
6. In their respective written statements in the two suits, Furu Ram and
Kalu Ram alleged that they were ready to get the sale deeds registered on the
date fixed for sale as per the agreement of sale dated 18.10.1991, but the
appellants evaded, and therefore the matter was referred to Arbitrator C B
Sharma by both parties for settlement. It was further alleged that the
Arbitrator recorded the statements of appellants as well as respondents and
made the awards. They contended that the awards made by the arbitrator and
the decrees made in terms of the awards were lawful and valid.
The Proceedings
7. In the two suits filed by appellants (C.S.Nos.63 and 64 of 1997) the
trial court framed appropriate issues as to whether judgments and decrees
dated 30.3.1992 were null and void; whether plaintiffs were entitled to
possession; whether the suits were not maintainable; whether the suits were
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not within time; and whether plaintiffs were estopped from filing the suits,
by their own conduct; and whether the suits were bad for misjoinder/non-
joinder of parties. Parties led oral and documentary evidence in support of
their cases.
8. The trial court decreed the two suits of appellants by common
judgment dated 7.2.1998. The trial court held that as the awards dated
13.3.1992 created a right in immovable properties in favour of the
respondents who did not have any pre-existing right therein, they were
compulsorily registrable; and as the arbitration awards were not registered
under the Registration Act, 1908, they were invalid and consequently the
judgments and decrees dated 30.3.1992 of the court, making decrees in
terms of the said awards were also invalid. In view of the said finding the
trial court declared that the decrees dated 30.3.1992, the agreements dated
12.3.1992, the awards dated 13.3.1992 and the mutations were illegal, null
and void, not binding on the plaintiffs and granted the relief of possession.
In the course of the said judgment, the trial court however held that the
evidence of the advocate Sudhir Sharma (DW-3) and the arbitrator C.B.
Sharma (DW-1) showed that the appellants had full knowledge of the facts
and circumstances of the two cases (CS Nos.366 and 367 of 1992) and only
thereafter they filed written statements admitting the claims; and that
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therefore the case of the appellants that the consent decrees dated 30.3.1992
were obtained by fraud and misrepresentation could not be accepted.
9. The respondents filed appeals against the said common judgment and
decrees dated 7.2.1998 of the trial court. The said appeals, filed on
19.3.1998, renumbered as C.A. No.37/2003 and 38/2003, were allowed by
the first appellate court (Addl. District Judge, Kurukshetra) by judgment
dated 3.8.2004 and the common judgment and decrees of the trial court in
the two suits were set aside and the suits filed by the appellants were
dismissed with costs. The first appellate court held that the consent decrees
in terms of the awards could not be challenged on the ground that they were
not registered; that having regard to section 32 of the Arbitration Act, 1940,
no suit would lie on any ground whatsoever, for a decision upon the
existence, effect or validity of an award, nor could any award be enforced,
set aside, modified or in any way affected, otherwise than as provided under
the said Act; that an award could be challenged or contested only by an
application under section 33 of the Act, and an award could be set aside only
on any of the grounds mentioned in section 30 of the said Act. The first
appellate court further held that as no application was filed under sections 30
and 33 of the said Act by appellants for setting aside the awards and as the
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awards had been made rule of the court, the suits for declaration filed by the
appellants were barred by section 32 of the Arbitration Act, 1940, and were
not maintainable. The second appeals filed by the appellants against the said
common judgment of the first appellate court were dismissed by the High
Court by judgment dated 11.8.2009 holding that decrees passed by a court in
terms of the arbitration awards under section 17 of the Arbitration Act, 1940,
did not require registration and that arbitration awards could be challenged
only by applications under section 33 of the said Act.
Questions for consideration
10. The said common judgment of the High Court is challenged in these
appeals by special leave. On the contentions urged, the questions that arise
for our consideration are as under:
(i) Whether the suits by appellants were not maintainable?
(ii) Whether the courts below were justified in holding that there was
no fraud or misrepresentation on the part of the respondents in
obtaining the decrees in terms of the awards dated 13.3.1992?
(iii) Whether the arbitration awards dated 13.3.1992 were invalid for
want of registration?
(iv) Whether the orders dated 30.3.1992 directing that the said awards
be made the rule of the court, invalid?
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Re: Question (i)
11. The appellants sought a declaration that the orders dated 30.3.1992
passed by the Senior Sub-Judge, Kurukshetra in C.S.No.366 and 367 of
1992 (directing that decrees be drawn in terms of the awards dated
13.3.1992) and the decrees drawn in terms of the awards as also the
agreements dated 12.3.1992 and the awards dated 13.3.1992 which led to
such decrees, were null and void, as they were the result of fraud and
misrepresentation; and that the mutations obtained on the basis of the said
decrees were also null and void. In other words, the appellants were seeking
a declaration that the proceedings before the court of Sr. Sub-Judge,
Kurukshetra, in the two suits under sections 14 and 17 of the Arbitration Act
1940 resulting in the orders dated 30.3.1992 and decrees made pursuant to
the said orders dated 30.3.1992 were null and void as they were vitiated by
fraud and misrepresentation and for the consequential relief of setting aside
the mutations based on such decrees and possession of the lands. The
challenge to the validity of the agreements dated 12.3.1992 and awards dated
13.3.1992 was incidental to challenge the orders dated 30.3.1992 and the
decrees drawn in pursuance of such orders. The first appellate court and the
High Court have therefore erroneously proceeded on the basis that the suits
were filed only for declaring that the arbitration agreements dated 12.3.1992
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and awards dated 13.3.1992 were invalid and that suits for such declaration
were not maintainable having regard to the bar contained in sections 32 and
33 of the Arbitration Act, 1940. What has been lost sight of is the fact that
the challenge was to the orders dated 30.3.1992 making the awards rule of
the court. To establish that the said judgments and decrees were obtained by
fraud and misrepresentation and therefore invalid, it was also contended that
the agreements dated 12.3.1992 and the awards dated 13.3.1992 and the
proceedings initiated under sections 14 and 17 of the Arbitration Act, 1940
seeking decrees in terms of the awards were all fraudulent. Therefore,
sections 32 and 33 of Arbitration Act, 1940 were not a bar to the suits
(C.S.Nos. 63 and 64 of 1997) filed by the appellants.
Re : Question (ii)
12. The manner in which the agreements dated 12.3.1992 were entered,
the awards dated 13.3.1992 were made and the said awards were made rule
of the court, clearly disclose a case of fraud. Fraud can be of different forms
and different hues. It is difficult to define it with precision, as the shape of
each fraud depends upon the fertile imagination and cleverness who
conceives of and perpetrates the fraud. Its ingredients are an intention to
deceive, use of unfair means, deliberate concealment of material facts, or
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abuse of position of confidence. `Fraud’ is `knowing misrepresentation of
the truth or concealment of a material fact to induce another to act to his
detriment’. `Fraud’ is also defined as a concealment or false representation
through a statement or conduct that injures another who relies on it in acting.
(vide The Black’s Law Dictionary). Any conduct involving deceit resulting
in injury, loss or damage to some one is fraud.
13. Section 17 of the Indian Contract Act, 1872 defines `fraud’ thus :
“17. `Fraud’ defined.-`Fraud’ means and includes any of the following
acts committed by a party to a contract, or with his connivance, or by his
agent, with intent to deceive another party thereto or his agent, or to
induce him to enter into the contract :
(1) the suggestion, as a fact, of that which is not true, by one who does
not believe it to be true;
(2) the active concealment of a fact by one having knowledge or belief
of the fact;
(3) a promise made without any intention of performing it;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be
fraudulent.
Explanation.- Mere silence as to facts likely to affect the willingness of a
person to enter into a contract is not fraud, unless the circumstances of the
case are such that, regard being had to them, it is the duty of the person
keeping silence to speak, or unless his silence, is in itself, equivalent to
speech.”
The word `fraud’ is used in section 12 of Hindu Marriage Act, 1955 in a
narrower sense. The said section provides that a marriage shall be voidable
and annulled by a decree of nullity if the consent of the petitioner was
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obtained by `fraud’ as to the nature of the ceremony or as to any material
fact or circumstance concerning the respondent. In the context in which it is
used refers to misrepresentation, false statement, deception, concealment.
14. Differently nuanced contextual meanings of the word `fraud’ are
collected in P.Ramnatha Aiyar’s Advanced Law Lexicon (3rd Edition,
Book 2, Page 1914-1915). We may extract two of them :
“Fraud, is deceit in grants and conveyances of lands, and bargains
and sales of goods, etc., to the damage of another person which
may be either by suppression of the truth, or suggestion of a
falsehood. (Tomlin)
The colour of fraud in public law or administrative law, as it is
developing, is assuming different shade. It arises from a deception
committed by disclosure of incorrect facts knowingly and
deliberately to invoke exercise of power and procure an order from
an authority or tribunal. It must result in exercise of jurisdiction
which otherwise would not have been exercised. That is
misrepresentation must be in relation to the conditions provided in
a section on existence or non-existence of which power can be
exercised.”
Any wilful attempt to defeat or circumvent any tax law in order to illegally
reduce one’s tax liability is a tax evasion which is termed as a tax fraud. The
stamp duty payable under Stamp Act is considered to be a species of tax
levied on certain transfer documents and instruments. Any wilful attempt to
defeat the provision of the Stamp Act or illegally evade one’s liability to pay
stamp duty will be a stamp evasion which would amount to a fraud.
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15. One of the plaintiffs (Naresh Kumar) was examined as PW-1 and Raj
Kumar, a member of the Panchayat was examined as PW-2. The evidence of
PW1 (Naresh Kumar) and PW2 (Raj Kumar) is consistent and narrate the
events described in the plaints in the two suits showing the deceit and fraud
practiced upon the appellants. The plaintiffs exhibited two documents that is
revenue extracts showing the mutation in favour of the respondents and the
decrees made in pursuance of the orders dated 30.3.1992 by the Sr. Sub-
Judge in CS Nos.366 and 367 of 1992.
16. The defendants – respondents did not step into the witness box to give
their version, which leads to an adverse inference that if the defendants had
examined themselves, their evidence would have been unfavourable to them
(vide section 114 of Evidence Act, 1872 read with illustration (g) thereto).
They however examined five witnesses : C.B. Sharma, the arbitrator, was
examined as DW-1; Ram Kumar, their power of attorney holder was
examined as DW 2; Sudhir Sharma, their Advocate who appeared in
C.S.No.366 and 367 of 1992, was examined as DW-3; Chander Pal, said to
be a member of the panchayat was examined as DW4; and Devi Dayal, a
court officer, was examined as DW-5 in connection with the production of
documents from the court. They also got exhibited among other documents,
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the agreement of sale dated 18.10.1991, the reference agreements dated
12.3.1992 appointing C. B. Sharma as arbitrator, the statements of parties
allegedly recorded by the Arbitrator on 12.3.1992, the awards dated
13.3.1992 made by the Arbitrator, the plaints, written statements and order-
sheets all dated 16.3.1992 and the final order dated 30.3.1992 in CS Nos.366
and 367 of 1992, the decrees in terms of the awards and the declarations
made by appellants on 31.3.1992.
17. The oral evidence of defendants’ witnesses (DW1 to DW4) unfolds a
story, different from what was pleaded by them in their written statement.
We may refer to the said evidence briefly.
18. C. B. Sharma who was examined as DW-1 stated that the parties gave
him the agreements dated 12.3.1992 appointing him as arbitrator, that as
arbitrator he recorded the statements of the appellants and the respondents
and on that basis, made the awards dated 13.3.1992. He states that appellants
appeared before the court and consented to the award as per proceedings
Ex.D4 dated 16.3.1992 and he identified them as their counsel before the
court. On further questioning, he admitted that he was not aware about the
transaction of sale and purchase between the parties or whether there was
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any dispute at all in regard to sale or purchase of land. He stated that the
parties submitted an arbitration agreement in regard to a loan and that he
gave the awards in regard to the loan; and that the reference agreements
dated 12.3.1992 were not in regard to any dispute relating to property nor
about the sale or purchase thereof nor about specific performance of any
agreement of sale and that the dispute was only in regard to money and he
was not appointed as arbitrator to settle any dispute in regard to any land.
He also stated that he did not charge any fee in regard to the arbitration or
making the awards.
19. DW2 – Ram Kumar, (son of Furu Ram), power of attorney holder of
defendants, stated that the agreement of sale in regard to 98 kanals 19 marlas
was got executed for a consideration of Rs.14 lakhs in favour of three sons
of Furu Ram (Ram Swaroop, Veer Singh and Ram Kumar) and four sons of
Kalu Ram (Bhagat Ram, Jagir Singh, Ramesh Kumar and Lala Ram); that
Rs.One lakh was given as earnest money under agreement dated 18.10.1991;
that there was a dispute in regard to the price and the dispute was decided by
a panchayat consisting of Chander Pal, Purushottam, Harbhajan, C. B.
Sharma (Advocate) and Sudhir Sharma (Advocate) and Rs.15 lakhs was paid
in cash in their presence to the appellants; that after paying the money it was
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decided that a court decree should be obtained in favour of the respondents
and C.B. Sharma was then appointed as the arbitrator to obtain a decree; that
C. B. Sharma made the awards and decrees were obtained from the court on
the basis of the said awards.
20. DW-3 – Sudhir Sharma who was the counsel for the respondents
stated that there was a dispute in regard to the sale price of the property
agreed to be sold by appellants to respondents. There was a panchayat on
12.3.1992 where it was agreed that the sale price should be increased by
Rs.200,000/-. In addition to the earnest money of Rs.100,000/-, earlier paid,
another sum of Rs. fifteen lakhs was paid in cash by the defendants to the
plaintiffs in full and final settlement before the members of the panchayat.
The parties felt that the expenses of stamp duty and registration of sale deed
would be high and agreed for an arbitration award and a decree in terms of
it. The panchayat resolved the dispute at around 1.30 p.m. Both parties and
C.B. Sharma thereafter came to his chamber. The agreements dated
12.3.1992 referring disputes to arbitration, were prepared by the arbitrator
C.B. Sharma. The said agreements were signed by the parties in his (Sudhir
Sharma’s) office. The parties had also given their statements to C.B. Sharma
in his office. The arbitrator made the awards on 13.3.1992. On the
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instructions of respondents (Furu Ram and Kalu Ram), he filed the two suits
under sections 14 & 17 of the Act for making decree in terms of the two
awards in the sub-court on 16.3.1992. The owners of the land Ramesh
Kumar and Naresh Kumar were impleaded as defendants 1 and 2 in the said
two suits and the Arbitrator C.B. Sharma was impleaded as the third
defendant. C.B. Sharma, represented defendants and 1 and 2 as their counsel
in the two suits. The court recorded the statements of both parties. After the
statements of the appellants (defendants in those suits) were recorded by the
court, they were identified by their counsel C.B. Sharma. He stated (in cross-
examination) that the payment of Rs.15 lakhs was made after the appellants
made statements before court agreeing for a decree in terms of awards.
21. DW-4 Chander Pal Singh stated that he was instrumental in getting
the parties to enter into the agreement of sale; that dispute arose as
respondents wanted to register sale deeds showing a lesser consideration and
appellants wanted the sale deed for the full consideration; that therefore a
panchayat was conveyed; that he was present when the negotiations took
place before the panchayat and settlement was reached by agreeing for a
price of Rs.16 lakhs; that Rs.15 lakhs was paid by Ram Kumar (Power of
Attorney Holder of respondents) to appellants in the presence of Panchayat
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consisting of himself, Purushottam, Harbhajan and Sudhir Sharma. Sudhir
Sharma, counsel for respondents got C.B.Sharma as Arbitrator to make an
award. After the decrees were made in terms of the awards, he tore the
receipt for Rs.15 lakhs given by appellants.
22. The respondents’ version of what transpired as emerging from the
evidence of their four witnesses (DW1 to DW4) (shorn of inconsistencies in
the evidence) can thus be summarized as follows : The sale in terms of the
agreement of sale dated 18.10.1991 did not take place, as the appellants
unreasonably demanded an increase in price for executing the sale deed. The
dispute was brought up before a panchayat. It was agreed before the
panchayat that the respondents should pay a sum of Rs.15,00,000 in addition
to earnest money of Rs.1,00,000/-, thereby increasing the price to
Rs.16,00,000/- instead of Rs.14,22,000/-. The respondents paid the entire
balance of Rs.15,00,000/- in cash in a lump sum to the appellants in the
presence of the panchayat. To avoid the heavy expenditure towards stamp
duty and registration charges for the sale deed, it was agreed that arbitration
awards would be obtained in favour of respondents and the appellants would
agree for decrees in terms of the awards, so as to confer title upon the
respondents, instead of executing sale deeds. In pursuance of it, the parties
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entered into two agreements dated 12.3.1992 appointing C.B. Sharma,
Advocate, as arbitrator. The said arbitrator recorded the statements of parties
on 12.3.1992 and made awards dated 13.3.1992 declaring Furu Ram to be
the owner in possession of 49 Kanals 10 Marlas of land and Kalu Ram to be
the owner of 49 Kanals and 9 Marlas of land. Thereafter, Furu Ram and
Kalu Ram filed petitions under sections 14 and 17 of the Arbitration Act,
1940 in the Court of the Senior Sub Judge, Kurukshetra praying that the
awards in their favour be made the rule of the court. By orders dated
30.3.1992 the court directed decrees be drawn up in terms of the award. In
pursuance of the decrees, Furu Ram and Kalu Ram also got the lands
mutated to their names. The decrees dated 30.3.1992 in terms of the awards
were valid and binding, and neither the decrees nor the awards were
fraudulent.
23. We may now refer to the documentary evidence produced by the
defendants – respondents, which narrate a completely different story.
24. The reference agreements dated 12.3.1992, the statements recorded by
the Arbitrator on 12.3.1992 and the awards dated 13.3.1992, all stated that
appellants had borrowed Rs.8 lacs from Furu Ram and Rs.8 lacs from Kalu
Ram in November 1991 and had agreed to repay the same with interest at
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the rate of 2% per month that as they were not able to repay the amounts
borrowed with interest, they agreed to give 49 kanals 10 marlas of land to
Furu Ram and 49 kanals 9 marlas of land to Kalu Ram and delivered
possession and confirmed the same before the arbitrator. The arbitral awards
stated that the disputes relating to payment of Rs.8 lacs with interest thereon
were referred to the Arbitrator, that the appellants had admitted borrowing
Rs.8 lacs from Furu Ram and Rs.8 lacs from Kalu Ram and further admitted
that being unable to pay the said amount, had given 49 kanals 10 marlas of
land to Furu Ram and 49 kanals 9 marlas of land to Kalu Ram and
therefore, Furu Ram has become the owner of 49 Kanals and 10 Marlas of
land and Kalu Ram had become the owner of 49 kanals and 9 marlas of land.
25. The identical plaints dated 13.3.1992 in the two suits (CS Nos.366-
367 of 1992) under sections 14 and 17 of the Arbitration Act, 1940 filed by
Furu Ram and Kalu Ram read as under :
“Application u/s 14/17 of the Arbitration Act to make the award dated
13.3.1992 the rule of the court.
Sir,
It is prayed as under:-
1. That the respondents no.1 and 2 had borrowed a sum of Rs.8,00000/-
from the applicant-plaintiff.
2. That the respondents no.1 and 2 failed to repay the amount and interest
to applicant – plaintiff.
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3. That vide agreement dt.12-3-1992 the respondent no.3 was appointed as
Arbitrator to decide the matter.
4. That the respondent no.3 has decided the matter vide award dated 13-
3-1992.
5. That the applicant – plaintiff has been declared as owner in possession
of the property mentioned in the award enclosed herewith.
6. That the applicant – plaintiff has been put in possession of the said
property at the spot and is debarred from recovering the amount and
interest from the respondents no.1 and 2.
7. That the respondents no.1 and 2 have refused to admit the award.
8. That the agreement and award were executed at Thanesar, Kurukshetra
so this learned court has got jurisdiction to try this application.
9. That the required court fees is paid on the application.
It is, therefore, prayed that the award dated 13-3-1992 may kindly be made
the rule of the court whereby the plaintiff-applicant may kindly be
declared as owner in possession of the land measuring 49 Kanals 10
Marlas detailed as under:-“
[Note : The other plaint by Kalu Ram was identical except the extent
which was 49 kanals 9 marlas and the description of the lands].
26. The written statements were also filed on the same day the suits were
filed, that is 16.3.1992. The written statements were not signed by either of
the appellants but were signed by C.B. Sharma (defendant no.3 in those
suits) as advocate for the defendants 1 and 2 (appellants). The brief written
statements stated that paras 1 to 7 of the plaint were correct and admitted
and that paras 8 and 9 were legal and that therefore the suit be decreed.
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27. The order-sheets dated 16.3.1992 in the said two suits, recorded that
the appellants (defendants 1 & 2 in the suits) appeared and stated that they
had no objection for decrees being made in terms of the award. The
appellants signed the order-sheets and were identified by the arbitrator C.B.
Sharma as their counsel. The cases (C.S.Nos.366 and 367 of 1992)
thereafter came up before the learned Sr.Sub-Judge on 30.3.1992. The
parties were not present. The orders of the court dated 30.3.1992 in both
suits were identical and they are extracted below :
“Present : Counsel for the parties.
Heard. Since the parties are not at issue, so the award dated 13.3.1992 –
Ex C1 is made the rule of the court. Decree sheet be prepared accordingly
and the award dated 13.3.1992 – Ex C1 shall form the part of the decree
sheet. The file be consigned to the record room.”
28. We find three different versions from the pleadings and evidence led
by the respondents. The case set forth in their written statements was
completely different from the case made out in the evidence of their
witnesses DW1, DW2, DW3 and DW4. More interestingly, the case set forth
in the written statements and the case made out in the oral evidence were
completely different from what is stated in the documentary evidence. Let us
refer to them briefly.
.
23
(a) The written statements filed by the respondents merely stated that the
appellants did not execute the sale deed, on the date fixed for sale, as per
agreement of sale dated 18.10.1991 and therefore, and the said dispute was
referred to arbitration and awards were made by the arbitrator on the basis of
their statements and decrees were made in terms of the award.
(b) The evidence of DW1 to DW4 was that appellants unreasonably
demanded the price to be increased from Rs.14,22,000/- to Rs.16,00,000/-,
that the resultant dispute was referred to Panchayat, that a price of
Rs.16,00,000/- was agreed before the Panchayat on 12.3.1992, that
immediately the respondents paid the balance of Rs.15,00,000/- in cash to
the appellants in the presence of the panchayat, that the respondents felt that
the stamp duty and registration expenses were high and that therefore, it was
agreed on the suggestion of their counsel that they should resort to the
process of getting an arbitration award and decree to convey the title instead
of execution of a sale deed. It was stated that C. B. Sharma was appointed as
the arbitrator who made the awards and decrees were obtained in terms of
the awards.
(c) The documentary evidence, that is the reference agreements, the
statements recorded by the Arbitrator, the awards, the plaints in the suits
under sections 14 and 17 of Arbitration Act, 1940, on the other hand do not
refer to the agreement of sale or the payment of price. They showed that the
appellants had borrowed Rs.8 lakhs from Furu Ram and Rs.8 lakhs from
Kalu Ram, about four months prior to 12.3.1992, and had agreed to repay
the same with interest at 2% per month; that thereafter, Furu Ram and Kalu
Ram demanded the money and the appellants were not in a position to repay
.
24
the loans and therefore a dispute arose; and that by mutual consent, C.B.
Sharma was appointed as an Arbitrator and parties agreed to be bound by his
decision. The appellants allegedly made statements before C.B. Sharma
(Arbitrator) admitting that they had taken Rs.8 lakhs from Furu Ram and
Rs.8 lakhs from Kalu Ram as loans, agreeing to repay the same with interest
at 2% per month, and that as they did not have the means to repay the same,
they had given 49 Kanals 10 Marlas to Furu Ram and 49 Kanals 9 Marlas of
land to Kalu Ram and also delivered possession of respective lands to Furu
Ram and Kalu Ram.
It is well settled that no amount of evidence contrary to the pleading can be
relied on or accepted. In this case, there is variance and divergence between
the pleading and documentary evidence, pleading and oral evidence and
between the oral and documentary evidence. It is thus clear that the entire
case of the respondents is liable to be rejected. The different versions clearly
demonstration fraud and misrepresentation on the part of the respondents.
29. The trial court in its judgment in C.S.Nos.63 and 64 of 1997 inferred
from the evidence of DW1 (C.B. Sharma) and DW3 (Sudhir Sharma) that
appellants had knowledge of the full facts and circumstances of the cases
filed under sections 14 and 17 of the Arbitration Act and that with such
knowledge, they had filed written statements therein, admitting the facts
.
25
and, therefore it could not be said that the judgments and decrees dated
30.3.1992 were obtained by misrepresentation and fraud. But the
documentary evidence produced by the respondents clearly showed that in
CS Nos. 366 and 367 of 1992, no notice/summons were issued to
defendants; that appellants (defendants 1 & 2) did not sign the written
statements which admitted the plaint averments; that the arbitrator who was
the third defendant in those suits, very strangely appeared as advocate for
defendants 1 and 2 (appellants) and signed the written statement and made a
statement before the court on 30.3.1992 that defendants did not have any
objection to the awards. All this lends credence to the case of appellants that
respondents had conspired with DW1 and DW3 and got certain documents
prepared and persuaded appellants who were barely literate, to give their
consent on 16.3.1992 by misrepresenting to them that they were giving
consent for giving their lands for cultivation to respondents for a period of
one and half years as per the settlement. The trial court ignored relevant
evidence and drew a wrong inference that there was no fraud or
misrepresentation.
30. Let us now refer to the fraudulent manner in which the orders were
obtained from the Sr. Sub-Judge, Kurukshetra for making decrees in terms
.
26
of the award. According to the evidence of respondents, the events took
place as under :
Stage I (12.3.1992)
(a) Settlement before the Panchayat that appellants 12.3.1992
should sell the property to the respondents for
Rs.16 lacs
(b) Decision of respondents to avoid stamp duty and 12.3.1992
registration charges and instead have an arbitration
award through Advocate C. B. Sharma as
arbitrator and then get decrees in terms of the
awards
(c) Reference agreements prepared by CB Sharma for 12.3.1992
referring the dispute to himself
(d) The signing of the reference agreement by parties 12.3.1992
(e) Statements of parties recorded by CB Sharma in 12.3.1992
the office of Sushil Sharma, Advocate for
respondents wherein appellants confirmed that
they had given the lands to respondents
Stage II (13.3.1992)
(a) Awards made by the Arbitrator 13.3.1992
(b) Plaints under sections 14 and 17 of Arbitration Act 13.3.1992
prepared by Sushil Sharma, on behalf of
respondents
Stage III (16.3.1992)
(a) CS Nos.366 and 367 of 1992 under sections 14 16.3.1992
and 17 of the Arbitration Act filed by respondents
on
(b) Written statements in the said suits signed by C.B. 16.3.1992
Sharma as Advocate for appellants (defendants in
the suit) filed on
(c) The statements of appellants that they were 16.3.1992
.
27
consenting to the decree, recorded by the court on
Stage IV
(a) Orders made directing decrees being drawn up in 30.3.1992
terms of the award
(b) Undated declaration by appellants confirming that 31.3.1992
they had agreed for decrees in favour of Furu Ram
and Kalu Ram attested by an Executive Magistrate
(with the endorsement “I know Naresh Kumar and
Ramesh Kumar and they have signed in my
presence made” by Sushil Sharma, advocate for
respondents)
The above narration will show that even according to the evidence produced
by the respondents the entire arbitration was sham and nominal, that an
alleged Panchayat had settled the dispute on 12.3.1992, that thereafter,
Sushil Sharma, advocate for respondents and C.B. Sharma, an advocate who
was made to act as an Arbitrator at the instance of respondents created a
bunch of documents and obtained the signatures of the appellants and
created proceedings for obtaining decrees in terms of the awards.
31. C. B. Sharma was an advocate engaged by respondents through their
counsel Sushil Sharma, to make awards in their favour. On 12.3.1992, he is
appointed as arbitrator. On 13.3.1992, he makes the awards and gives them
to respondents. On 16.3.1992, he signs the written statements of defendants
(appellants herein) in the proceedings under sections 14 and 17 of
.
28
Arbitration Act, 1940 as their counsel. Though he is the third defendant in
the said two suits (C.S. Nos.366 and 367 of 1992), he appears as the counsel
for defendants 1 and 2 without their consent or knowledge. On 30.3.1992, he
makes a statement on behalf of defendants 1 and 2 that they have no
objection for decrees being made. We fail to understand how a counsel can
do these things. His acts are fraudulent.
32. We may next refer to the inconsistencies and improbabilities in the
evidence. According to respondents, the appellants had refused to execute
the sale deed, for the price of Rs.14,22,000/- and demanded an increase in
the price; that in the presence of a panchayat, an increase in price was agreed
on 12.3.1992, and that the entire balance price of Rs.15,00,000/- was
immediately paid in cash on 12.3.1992 in the presence of the panchayat.
While DW2 says that Rs.15,00,000/- was paid in cash in the presence of the
Panchayat. DW-3 Sudhir Sharma states that the payment was made after the
appellants made a statement before the court agreeing for a decree in terms
of the awards, that is on 16.3.1992. Further, it is highly improbable that the
respondents would have attended the Panchayat readily carrying
Rs.15,00,000/- in cash and paid it immediately after the settlement. If the
said evidence is accepted, the entire documentary evidence showing that two
.
29
sums of Rs.800,00/- each were given as loans to appellants about four
months prior to 12.3.1992 and the lands were given to respondents as
appellants could not repay the same are proved to be false and fraudulent.
33. We may next refer to the stamp fraud committed by respondents.
According to the DW-1 to DW-4 under the agreement of sale dated
18.10.1991, the sale price agreed was Rs.14,22,000/-, that in the presence of
a panchayat, there was a settlement and the price was increased to
Rs.16,00,000 for 98 kanals 19 marlas of land, that the said price was paid
half being the sale price in regard to an extent of 49 Kanals 10 marlas sold to
Furu Ram and the remaining half being the sale price in regard to an extent
of 49 Kanals 9 Marlas sold by appellants to Furu Ram and Kalu Ram. The
respondents wanted to avoid payment of stamp duty and registration
charges on the sale deeds. They were advised by their lawyer that they
could get decrees from a civil court in terms of an arbitration award so that
sale deeds need not be executed and stamp duty and registration charges
need not be paid. It was decided by the respondents on the advice of their
lawyer to get arbitration awards declaring them as owners and also get
court decrees in terms of the awards. . On the same day (12.3.1992) their
lawyer got reference agreements prepared through the arbitrator C.B.
.
30
Sharma which were executed by the parties to get arbitration awards by
consent. In short the agreements, arbitration awards and decrees were sham
and nominal, the object of respondents being to evade the stamp duty and
registration charges payable with respect to a sale deed, by obtaining decrees
from the court in terms of the awards which declared their title.
34. Let us refer to another facet of such stamp fraud. There can be a
reference to arbitration only if there is a dispute and there is an agreement to
settle the dispute by arbitration. If the parties had already settled the disputes
before a panchayat for sale of half of the property to Furu Ram and another
half to Kalu Ram for a consideration of Rs.8,00,000 plus Rs.8,00,000/-, and
appellant had received the entire consideration, and delivered possession,
there was no dispute between the parties, that could be referred to
arbitration. The respondents, on the advice of their advocate Sudhir Sharma
decided to have a nominal and sham arbitration proceedings and awards by
C.B. Sharma and get decrees made in terms of the awards, only to avoid
stamp duty and registration charges. The entire procedure was fraudulent
because (i) there was no dispute between the parties; (ii) there was no
reference of any dispute to arbitration; (iii) the reference agreements dated
12.3.1992 were prepared and executed in pursuance of a pre-existing
.
31
arrangement to have a collusive awards; (iv) the arbitrator was not required
to decide any dispute between the parties, nor was there any adjudication of
the dispute by the arbitrator. DW-1 who claims to be the arbitrator clearly
stated in his evidence, that the reference under the agreements dated
12.3.1992 was in regard to a dispute relating to loan of Rs.800,000/-
advanced to each appellant. Therefore, the statements in the two awards that
the reference agreements dated 12.3.1992 were in regard to a dispute in
regard to the failure to repay the two loans of Rs.800,000/- each and interest
thereon; that the appellants admitted before the Arbitrator that they had
borrowed Rs.8,00,000 from Furu Ram and Rs.8,00,000 from Kalu Ram; that
the appellants did not have the means to repay the same and that instead of
repaying the amount with interest, that they had therefore given to Furu Ram
an extent of 49 Kanals 10 Marlas and to Kalu Ram, 49 Kanals 9 marlas of
land; that Furu Ram and Kalu Ram confirmed that they had already taken
the said lands in lieu of the amount due to them, are also false and at all
events, sham averments to create two awards. The references to arbitration,
the proceedings before the arbitrator, the awards of the arbitrator, and the
proceedings in court to get decrees in terms of the awards, and the decrees in
terms of the award were all thus sham and bogus, the sole fraudulent object
being to avoid payment of stamp duty and registration charges.
.
32
35. The modus operandi adopted by the respondents to obtain title to
lands without a conveyance and without incurring the stamp duty and
registration charges due in respect of a conveyance by obtaining a sham and
collusive arbitration awards when there was no dispute, and then obtaining a
nominal decree in terms of the said awards would be a fraud committed
upon the court and the state government by evading liability to pay the
stamp duty and registration charges. The irregularities, illegalities,
suppressions and misrepresentations which culminated in the orders dated
30.3.1992 in CS NOs.366 and 367 of 1992 directing that the awards dated
13.3.1992 be made decrees of the court, show that the decrees in terms of the
awards were obtained fraudulently.
36. Normally, this Court would not interfere with a finding of fact relating
to fraud and misrepresentation. But as material evidence produced by the
defendants – respondents had been ignored and as the courts below failed to
draw proper inferences therefrom and had ignored a cause of fraud, we are
constrained to interfere with reference to a question of fact. The suits were
decreed by the trial court on the ground that the decrees were null and void
and all the reliefs sought were granted. When the decrees dated 30.3.1992
were held to be null and void, the question of plaintiffs challenging any
.
33
other finding in the judgment did not arise. Therefore when the first
appellate court and High Court held that the decree was not null and void,
the plaintiffs-appellants were entitled to urge all grounds to show that the
entire transaction and arbitration proceedings were fraudulent and the decree
was also a result of fraud. Be that as it may.
Re : Point (iii)
37. Chapter III of Registration Act, 1908 relates to registrable documents.
Section 17 enumerates the documents which are compulsorily registrable
and the exceptions to the categories of documents which are compulsorily
registrable. The relevant portions of the said sections are extracted below:
“17. Documents of which registration is compulsory
(1) The following documents shall be registered, if the property to which
they relate is situate in a district in which, and if they have been executed
on or after the date on which, Act No. XVI of 1864, or the Indian
Registration Act, 1866, or the Indian Registration Act, 1871, or the Indian
Registration Act, 1877 or this Act came or comes into force, namely:-
xxx xxx xxx
(b) other non-testamentary instruments which purport or operate to create,
declare, assign, limit or extinguish, whether in present or in future, any
right, title or interest, whether vested or contingent, of the value of one
hundred rupees, and upwards, to or in immovable property;
(c) non-testamentary instruments which acknowledge the receipt or
payment of any consideration on account of the creation, declaration,
assignment, limitation or extinction of any such right, title or interest; and
(2) Nothing in clauses (b) and (c) of sub-section (1) applies to-
.
34
xxx xxx xxx
(vi) any decree or order of a court except a decree or order expressed to be
made on a compromise, and comprising immovable property other than
that which is the subject-matter of the suit or proceeding].”
38. A reading of these provisions make the following position clear (a)
any non-testamentary document purporting or operating to create, declare
any right, title or interest in any immoveable property of the value of more
than Rs.100 is compulsorily registrable; (b) that an order or decree of a court
is not compulsorily registrable even if it purports or operates to create,
declare any right, title or interest in any immoveable property of the value of
more than Rs.100; (c) that if the decree or order of the court is not rendered
on merits, but expressed to be made on a compromise and comprises any
immoveable property which was not the subject mater of the suit or
proceeding, such order or decree is compulsorily registrable; and (d) that as
clause (iv) of sub-section (2) of section 17 excludes decrees or orders of
court, but does not exclude awards of arbitrator, any arbitration award which
purports or operates to create, declare any right, title or interest in any
immoveable property of the value of more than Rs.100 is compulsorily
registrable.
.
35
39. As noticed above, the reference agreements dated 12.3.1992 were not
in regard to any agreement of sale or any dispute relating to immoveable
property, or in regard to the lands in regard to which the award was made. It
did not refer to the lands in question. No dispute regarding immoveable
property was referred to arbitration or was the subject matter of the
arbitration. The alleged subject matter of arbitration was non-payment of
Rs.8,00,000 said to have been borrowed by each of the appellants. The
arbitrator recorded an alleged statement by the borrowers (appellants) that
they had received Rs.8,00,000 from Furu Ram and Rs.8,00,000/- from Kalu
Ram; that they were not able to refund the same and therefore they had
given lands measuring 49 Kanals 10 Marlas to Furu Ram and another 49
Kanals 9 Marlas to Kalu Ram; and that Furu Ram and Kalu Ram confirmed
that they had obtained possession of the said land. The awards therefore
declared that Furu Ram and Kalu Ram had become the absolute owners of
the lands in question. Thus the awards are clearly documents which purport
or operate to create and declare a right, title or interest in an immoveable
property of the value of more than Rs.100 which was not the subject of the
dispute or reference to arbitration. Therefore the awards were compulsorily
registrable. If they were not registered, they could not be acted upon under
section 49 of the Registration Act, 1908 nor could a decree be passed in
.
36
terms of such unregistered awards. Unregistered awards which are
compulsorily registrable under section 17(1)(b) could neither be admitted in
evidence nor can decrees be passed in terms of the same.
40. In Ratan Lal Sharma vs. Purshottam Harit AIR 1974 SC 1066, this
court held :
“So in express words it purports to create rights in immovable property
worth above Rs.100/- in favour of the appellant. It would accordingly
require registration under S.17, Registration Act. As it is unregistered, the
Court could not look into it. If the court could not, as we hold, look into it,
the Court not pronounce judgment in accordance with it. Sec. 17,
Arbitration Act presupposes an award which can be validly looked into by
the Court. The appellant cannot successfully invoke Section 17……… we
are of opinion that the award requires registration and, not being registered
is inadmissible in evidence for the purpose of pronouncing judgment in
accordance with it.”
In Lachhman Dass vs. Ram Lal – 1989 (3) SCC 99, this Court held :
“In the present case the award declared that half share of ownership of the
appellant to the lands in question “shall now be owned” by the respondent
in addition to his half share in the lands. On a proper construction of the
award, it is thus clear that the award did create, declare or assign a right,
title and interest in the immovable property. It is not merely a declaration
of the pre-existing right but creation of new right of the parties. Since the
award affected the immovable property over Rs.100 it was required to be
registered. …………..
An award affecting immovable property of the value of more than Rs.100
cannot be looked into by the court for pronouncement upon the award on
the application under Section 14 of the Arbitration Act unless the award is
registered. ………..
As the court could not look into the award, there is no question of the
court passing a decree in accordance with the award and that point can
also be taken when the award is sought to be enforced as the rule of the
court.”
.
37
The courts below have not considered or decided this aspect at all.
Re: Question (iv)
41. If an award was not genuine, but was collusive and sham, the court
will not and in fact can not make it a rule of the court. As noticed above,
there should be a dispute, there should be an agreement to refer the dispute
to arbitration, there should be reference to arbitration, there should be an
adjudication or decision by the arbitrator after hearing parties, for a valid
arbitration. If the parties had already settled their disputes and the arbitration
award was only a ruse to avoid payment of stamp duty and registration with
respect to a sale deed and declare a title in persons who did not have title
earlier, then the entire proceedings is sham and bogus. In fact, C.B. Sharma
was not really an arbitrator, nor the proceedings before him were arbitration
proceedings and the awards were not really arbitration awards. If all these
facts which have a bearing on the making of the award and the validity of
the award are suppressed before the court and the court was misled into
making decrees in terms of the awards, necessarily the proceedings are
fraudulent and amounted to committing fraud on the court. In these
.
38
circumstances the decree in CS Nos.366 and 367 of 1992 on the file of the
Sr. Sub-Judge, Kurukshetra were invalid.
Conclusion
42. We, therefore allow these appeals, set aside the judgments of the first
appellate court and High Court and restore the decrees of the trial court
decreeing the suits filed by the appellants.
……………………….J.
(R. V. Raveendran)
……………………….J.
(A.K. Patnaik)
New Delhi;
August 18, 2011
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