Holding

The report of the Chartered Accountant is not an arbitral award; the appointment was as a commissioner under Order XXVI, not an arbitrator under Section 21, and the appeal is allowed.

Summary

The plaintiff filed a suit for settlement of accounts against the defendant and applied for a Chartered Accountant to be appointed as a panch/commissioner to audit the accounts. The trial court appointed the CA, who submitted a report indicating amounts due, and treated the appointment as an arbitration reference under Section 21 of the Arbitration Act, 1940. The High Court affirmed this view. The appellant challenged, arguing that there was no agreement to refer the dispute to arbitration and that the CA was appointed merely as a commissioner under Order XXVI of the Code of Civil Procedure. The Supreme Court held that Section 21 requires a written agreement of all parties, which was absent; the CA’s role was that of a court‑appointed expert commissioner, and his report is not an arbitral award. Consequently, the appeal was allowed, the High Court order set aside, and the suit will proceed on its merits with the CA’s report treated as a commissioner’s opinion.

Issues considered

The applicability of Section 21 of the Arbitration Act, 1940 to the appointment of the Chartered Accountant.
Whether the report of the Chartered Accountant constitutes an arbitral award.
Whether the parties had mutually agreed to refer the dispute to arbitration.
Whether the court had jurisdiction to refer the matter to arbitration in the absence of such agreement.

Legislation cited

Arbitration Act, 1940s. 21
Code of Civil Procedure, 1908s. Order XXVI Rule 11, s. Order XXVI Rule 9
Indian Contract Act, 1872
Specific Relief Act, 1963s. 14A

Subjects

ArbitrationSection 21CommissionerChartered AccountantArbitral awardCivil suitCode of Civil ProcedureExpert reportConsentReference to arbitration

Judgment

[2022] 4 S.C.R. 647 647

M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH A
MARYADIT, PACHAMA, DISTRICT SEHORE AND OTHERS
v.
M/S. MODI TRANSPORT SERVICE
(Civil Appeal No. 1973 of 2022) B
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
C
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 D
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
E
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 F
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
G
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 – H
647
648 SUPREME COURT REPORTS [2022] 4 S.C.R.

A 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
B 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
C 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.
D 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
E 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
F 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
G 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 decided
by an arbitrator. [Para 17][663-G-H; 664-A-B]

H
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA, 649
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE

1.3 In the instant case, the application dated 23.12.1994 A
was moved by the plaintiff and it was not signed by the defendant.
As per the heading, the application was for the appointment of a
commissioner/arbitrator to conduct an ‘enquiry’ in respect of the
accounts by a competent Chartered Accountant who shall act as
a panch/Commissioner and submit a report after conducting an
B
audit of the accounts. It was stated that the transactions between
the parties are fairly large in number and, therefore, it is necessary
to handover the said task to a Chartered Accountant. The
application also states that for the enquiry regarding accounts an
opportunity of hearing should be given to both the parties. Name
of SKM, Chartered Accountant, to act as panch/commissioner C
was proposed. The prayer in the application was that the panch/
commissioner would submit the report to the court after
conducting an audit of the accounts. The application cannot be
read as an application moved on a prior agreement or consensus
for reference to arbitration. The application cannot be read as an
D
application by the parties under Section 21 of the Arbitration Act.
First, it is not an application for reference of disputes to an
arbitrator for adjudication but a request for the appointment of
an expert, that is, a Chartered Accountant, who would examine
the accounts and papers and submit the report to facilitate the
court. The role assigned to SKM is also clear from the letter of E
appointment which states that SKM has been appointed as CA
and would be conducting an audit of all disputed accounts of both
sides, and that he should send a report to the court. Secondly,
the court’s jurisdiction to finally decide was not questioned or
annihilated. In fact, the court always remained in the picture,
F
exercised parley as an adjudicator having dominion over the
subject matter of the suit. [Paras 18 and 19][664-E-G; 665-A]
1.4 The first portion of the order dated 23.12.1994 records
that the plaintiff has made an application for settlement of accounts
and that the accounts can be examined only by a well-educated
Chartered Accountant. A copy of the application had been handed G
over to the counsel for the defendant who had no objection “to
being appointed as Panch in this case”. This statement is
somewhat vague, but cannot be read as as an indication or
affirmation that the defendant had agreed to the appointment of
H
650 SUPREME COURT REPORTS [2022] 4 S.C.R.

A an arbitrator as an alternative and substitute to court adjudication.
If it was so, this should have been clearly stated to enable the
parties to respond and make statement. At best it was restricted
to the appointment of an expert/commissioner who would examine
the accounts and submit his report. The second portion of the
order dated 23.12.1994 states that in the application name of
B
SKM, Chartered Accountant, as panch was proposed to which
no party had any objection. Thereafter, the order records the
direction of the court that the fee of the arbitrator ‘would be as
prescribed in the schedule of the Arbitration Council of India
and if the arbitrator demands a fee the same should be equally
C shared by both the parties’. The last portion does not incorporate
and does not refer to any agreement or even concession given
by the defendant agreeing to arbitration as an alternative to court
adjudication and decision. The court had not disposed of the suit
by referring the subject matter or a part of the subject matter of
the suit to arbitration. The said order is for issuing a commission
D
as the court had accepted an application filed by the plaintiff for
verification of the accounts. The commissioner was to act as an
expert or facilitator for the court and submit a report to the court
to help the court adjudicate and finally decide the suit. [Paras 20
and 21][665-B-G]
E 1.5 There is also a distinction between the scope and
functions of an arbitral tribunal and a commissioner appointed
under Order XXVI Rules 9 and 11 of the Code. For submission
to arbitration, there must be an arbitration agreement or an
agreement in terms of Section 21 of the Act that the difference or
F dispute between the parties for which they intend to be
determined in a quasi-judicial manner. Commissioners are
appointed by the court. Appointment may be with consent of the
parties, or even when there is objection to the appointment.
Preexisting agreement or the requirement that the parties agree
before the court, as is mandatory in case of arbitration, is not
G necessary when a court directs appointment of a commissioner.
In the case of a reference to a commissioner, all that the parties
expect from the commissioner is a valuation/ examination of the
subject matter referred, which he would do according to his skill,
knowledge and experience, which may be without taking any
H
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA, 651
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE

evidence or hearing argument. The principle of a ‘facilitator’ can A
be introduced, which a court may appoint, be it a commissioner
or an expert, for a specific purpose and cause for ascertainment
of a fact which may be even disputed. In some cases, the
commissioner may even hear the parties and give his expert
opinion based on the material or evidence produced by the parties
B
before the commissioner, as in this case when the court appointed
a Chartered Accountand who as an expert was required to give
his opinion on the statement on accounts to facilitate and help
the court arrive at a fair and just decision. It was to save the
court’s time and cut delay in the decision by the court. [Para
32][670-F-G; 671-A-E] C
1.6 Order XXVI Rule 9 of the Code gives wide powers to
the court to appoint a commissioner to make local investigations
which may be requisite or proper for elucidating any matter in
dispute, ascertaining the market value of any property, account
of mesne profit or damages or annual net profits. Under Order D
XXVI Rule 11, the court has the power to issue a commission in
a suit, in which examination of adjustment of accounts is
necessary, to a person as it thinks fit directing him to make such
examination or adjustment. When a court issues such a
commission to such a person, it can direct the commissioner to
make such an investigation, examination and adjustment and E
submit a report thereon to the court. The commissioner so
appointed does not strictly perform a ‘judicial act which is binding’
but only a ‘ministerial act’. Nothing is left to the commissioner’s
discretion, and there is no occasion to use his judgment or
permitting the commissioner to adjudicate and decide the issue F
involved; the commissioner’s report is only an opinion or noting,
as the case may be with the details and/or statement to the court
the actual state of affairs. Such a report does not automatically
form part of the court’s opinion, as the court has the power to
confirm, vary or set aside the report or in a given case issue a
new commission. Hence, there is neither abdication nor G
delegation of the powers of functions of the court to decide the
issue. Sometimes, on examination of the commissioner, the report
forms part of the record and evidence. The parties can contest
an expert opinion/commissioner’s report, and the court, after
hearing objections, can determine whether or not it should rely H
652 SUPREME COURT REPORTS [2022] 4 S.C.R.

A upon such an expert opinion/commissioner’s report. Even if the
court relies upon the same, it will merely aid and not bind the
court. In strict sense, the commissioners’ reports are ‘non-
adjudicatory in nature’, and the courts adjudicate upon the rights
of the parties. [Para 33][671-E-F; 672-A-E]
B 1.7 The matter referred to SKM was limited to examination
of the accounts. The issues and questions of dispute in the suit
were far broader and wider. These included questions as to the
agreed price or the rate of transportation , computation of the
transportation costs payable to the plaintiff under the contract in
case the coal delivered was within or beyond the 1% stipulation,
C whether or not the defendants were right in making deductions
on account of bad quality coal, higher moisture content etc.
whereby the weight of the coal had increased, delay in delivery
on the part of the plaintiff, whether the defendants are entitled to
charge interest while making recoveries, etc. SKM himself did
D not decide whether or not the plaintiff is entitled to rent of the
plot or security charges observing that this was an aspect for the
court to decide. However, he forgot that his ‘jurisdiction’ was
limited to checking and verifying accounts and not deciding any
issue or questions beyond the accounts. [Para 35][673-C-E]
E 1.8 The impugned order of the High Court affirming the
order passed by the Additional District Judge is set aside. It is
held that the report of the Chartered Accountant is not an award
and is to be treated as a report of a commissioner appointed by
the Court under Order XXVI Rule 11 of the Code. [Para 36][673-
F-G]
F
Firm Khetu Ram Bashamber Dass v. Kashmiri Lal (1959)
SCC OnLine Punj 102; Kerala State Electricity Board
and Another v. Kurien E. Kalathil and Another (2018)
4 SCC 793 : [2018] 11 SCR 511; Afcons Infrastructure
Ltd. v. Cherian Varkey Construction Co. (P) Ltd. (2010)
G 8 SCC 24 : [2010] 8 SCR 1053; Shailesh Dhairyawan
v. Mohan Balkrishna Lulla (2016) 3 SCC 619 : [2015]
12 SCR 70; Byram Pestonji Gariwala v. Union Bank
of India (1992) 1 SCC 31 : [1991] 1 Suppl. SCR 187;
Bihar State Mineral Development Corpn. v. Encon
H
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA, 653
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE

Builders (I) (P) Ltd. (2003) 7 SCC 418 : [2003] 2 Suppl. A
SCR 812; ITC Ltd. v. George Joseph Fernadez and
Another (1989) 2 SCC 1 : [1989] 1 SCR 469; K.K.
Modi v. K.N. Modi and Others (1998) 3 SCC 573 :
[1998] 1 SCR 601; Bharat Bhushan Bansal v. U.P. Small
Industries Corporation Ltd. (1999) 2 SCC 166 : [1999]
B
1 SCR 181; Dayal Singh and Others v. State of
Uttaranchal (2012) 8 SCC 263 : [2012] 10 SCR 157;
Murari Lal v. State of M.P. (1980) 1 SCC 704 : [1980]
2 SCR 249; Nagarajan v. A. Madhanakumar (1996)
SCC OnLine Mad 17 – referred to.
Felthouse v. Bindley (1862) 142 ER 1037; Davis v. C
Edinburgh Magistrate 1953 SC 34 – referred to.
Case Law Reference
[2018] 11 SCR 511 referred to Para 23
[2010] 8 SCR 1053 referred to Para 23 D
[2015] 12 SCR 70 referred to Para 24
[1991] 1 Suppl. SCR 187 referred to Para 25
[2003] 2 Suppl. SCR 812 referred to Para 26
[1989] 1 SCR 469 referred to Para 27 E

[1998] 1 SCR 601 referred to Para 28
[1999] 1 SCR 181 referred to Para 30
[2012] 10 SCR 157 referred to Para 31
F
[1980] 2 SCR 249 referred to Para 31
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1973
of 2022.
From the Judgment and Order dated 19.09.2019 of the High Court
of Madhya Pradesh, Principal Seat at Jabalpur in First Appeal No. 505 G
of 1996.
Ms. Ankita Chaudhary, Dy. AG, Abhinav Shrivastava,
Ms. Himanshi Shakya, Sunny Choudhary, Advs. for the Appellants.

H
654 SUPREME COURT REPORTS [2022] 4 S.C.R.

A Arunabh Chowdhury, Sr. Adv., Mrs. Pragya Baghel, Sourabh
Tandon, Advs. for the Respondent.
The Judgment of the Court was delivered by
SANJIV KHANNA, J.
B 1. The legal issue arising in the present appeal is whether the
parties had agreed that the subject matter of the suit or a part thereof
should be referred to arbitration under Section 21 of the Arbitration Act,
1940.1
2. On 03rd September 1993, the respondent before us - M/s. Modi
C Transport Service,2 a partnership firm, had filed a civil suit in the Court
of the District Judge, Sehore Camp, Astha, Madhya Pradesh, for the
settlement of accounts of transportation of coal undertaken by them
according to the agreement dated 01 st October 1990 and the
supplementary agreement dated 13th December 1991, with M.P. Rajya
Tilhan Utpadak Sahkari Sangh Maryadit, Pachama, District Sehore,
D Madhya Pradesh (the first defendant). The General Manager and
Managing Director of the said Sahkari Sangh were impleaded as second
and third defendants.3 The plaintiff had also prayed for a grant of the
amount due and payable by the defendant and the amount spent by the
plaintiff on the security of the defendant’s goods and all other amounts
E (sic) with interest @ 2%.4
3. The plaint, in brief, states that the plaintiff had transported coal
on the delivery orders issued by the defendant from the coal mines to
the defendant’s plant. The plaintiff had no connection with the quality or
any deficiency in the quality of the coal. The plaintiff, as per directions,
F had loaded the coal from the coal mines of Western India Coalfields
Limited. The plaintiff’s sole responsibility was to deliver the coal on time
at the defendant’s plant. By communication dated 05th June 1992, the
defendant had informed that the plaintiff would be paid transportation
charges at Rs.1.42p. per tonne per kilometre till the finalisation of the
new agreement. The order would remain in force for at least six months.
G 1
We are examining the provisions of the Arbitration Act, 1940 and consequently, the
observations and the findings recorded should not be without proper appreciation of
the principles applied to the proceedings under the Arbitration and Conciliation Act,
1996.
2
‘The plaintiff’, for short.
3
Collectively three defendants are referred to as ‘the defendant’, for short.
H 4
Interest period was not specified.
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA, 655
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE [SANJIV KHANNA, J.]

The plaintiff, as required, had furnished a bank guarantee of A
Rs.1,00,000/- (rupees one lakh only) for six months. Thereafter, the
defendant had refused to pay transportation charges @ Rs.1.42p. per
tonne per kilometre. Further, the defendant had made deductions from
the bills raised on the basis of the actual tonnage of coal delivered, though
the plaintiff, as per the agreement, was entitled to a 1% variation or
B
exemption on the quantum of coal loaded at the coal mine. Accordingly,
transport charges were payable per ton per kilometre as loaded at the
collieries and not on the quantity actually delivered as long as the shortfall
was within 1%. The defendant had also made false and wrong deductions
on account of the high moisture content in the coal. Interest was charged
and deducted from the bills of the plaintiff by the defendant. Subsequently, C
the defendant had issued a telegraph asking the plaintiff not to transport
coal. The plaintiff had to arrange for a plot to store the coal for which he
had to pay a rent of Rs.10,000/- (rupees ten thousand only) per month
and incur security expenses of Rs.5,000/- (rupees five thousand only)
per month for up to five months.
D
4. The defendant contested the suit by filing a detailed written
statement. As per the defendant, it was an essential duty of the plaintiff
to lift the coal offered only on being satisfied that the coal was of good
quality. The plaintiff had lifted good quality coal from the collieries against
the release orders of the defendant, but low quality of coal was delivered
to the defendant. The defendant was cheated. The representatives of E
the plaintiff were informed about the low quality of coal on account of
excessive moisture, and stone and dust being mixed with the coal. The
truck drivers had showered water on the coal to intentionally increase
the weight of the coal before delivery. Letter dated 05th June 1992 in this
regard was issued by the defendant to the plaintiff. The plaintiff was to F
be paid transportation charges for the coal actually accepted at the plant
of the defendant and not for the coal which was not delivered. As per
clause 11 of the agreement, shortage up to 1% per truck was the
maximum limit, whereas the plaintiff had claimed that 1% shortage should
be allowed even when there was no difference between the dispatched
and delivered weight. The price of coal was deducted and recovered G
from the plaintiff when the shortage was in excess and beyond the 1%
allowable limit. There were delays in the delivery of coal, sometimes
extending to more than a month from the dispatch date. Accordingly, the
defendant had made deductions on account of wrong and fraudulent
acts due to which the defendant had suffered losses. The plaintiff was H
656 SUPREME COURT REPORTS [2022] 4 S.C.R.

A also liable to pay interest as the defendant had suffered due to blockage
of funds. The defendant was not liable to pay any demurrage or rent
charges for the plot and, in fact, such charges were never paid. The
plaintiff had not delivered and kept huge quantity of coal for six to seven
months after the coal was lifted from the coal mines. Other defences
raised related to incomplete documentation and excess freight charges
B
by the wrong declaration as to the place from where the coal was lifted.
The letter dated 05th June 1992 enhancing the rate to Rs.1.42p. per
tonne per kilometre was withdrawn/cancelled retrospectively vide the
letter dated 30th September 1992. The letter dated 05th June 1992 was
issued on wrong facts based on the rate quoted by a sister concern of
C the plaintiff in a tender floated in June 1992. Subsequently, the sister
concern had voluntarily reduced the rate to Rs.1.32p. per tonne per
kilometre. In fact, the plaintiff and their sister concern had quoted three
different rates in a short period of time to misguide and confuse the
General Manager (Plant) of the defendant who had issued the letter
dated 05th June 1992. The plaintiff did not raise any objection to the
D
letter dated 30th September 1992 and had continued to transport and
deliver coal post the issue of the letter. The plaintiff had accepted the
cancellation of the letter dated 05th June 1992. Furnishing of the bank
guarantee of Rs.1,00,000/- (rupees one lakh only) for six months was
not on account of an increase in rates but on account of the fact that the
E contract for transportation of coal by the plaintiff has been extended up
to December 1992.
5. As stated above, the plaintiff had not quantified the amount
payable therein and had sued for settlement of accounts regarding the
quality of coal transported. They had also prayed for the interest @ 2%
F which, it appears, was the amount claimed as payable per month. For
valuation, the plaint had fixed the value of the suit at Rs.1,00,000/- (rupees
one lakh only) and a court fee of Rs.8,180/- (rupees eight thousand one
hundred eighty only) was paid with the statement that excess court fee
could be deposited after the amount was quantified. However, a number
of contestations inter se parties were raised like the rate and quantification
G of the transport charges, lapses and alleged failure by the plaintiff on
different accounts, the deductions made by the defendant and the
plaintiff’s liability to pay interest on excess payments made.
6. During the pendency of the said suit, the plaintiff had filed an
application before the First Additional District Judge, Sehore, which reads:
H
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA, 657
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE [SANJIV KHANNA, J.]

“COURT: FIRST ADDITIONAL DISTRICT JUDGE, A
SEHORE (M.P.)
CIVIL SUIT NO. 16B/93
M/s Modi Transport Service …..Plaintiff
Versus
B
M.P. Rajya Tilhan Sangh etc. ……Defendant
Application for appointment of Arbitrator/Commissioner
1. Present Suit has been filed by the plaintiff against the
Defendants for settlement of accounts. In view of the pleadings
made by the Plaintiff, documents produced on record and pleadings C
and documents of Defendant, it is prima facie clear that there is a
dispute between both the parties is in respect of accounts. For the
purpose of conducting enquiry regarding accounts after giving
opportunity of hearing to both the parties, it is necessary in the
interest that after appointing a Competent Chartered Accountant D
as Panch/ Commissioner in the present case he may be directed
to submit report after conducting audit of Accounts. Since, the
transaction took place between both the parties are much higher,
therefore, it is necessary to handover the aforesaid work to a
Chartered Accountant.
E
Therefore, it is prayed that by allowing the present Application,
and after appointing Sh. Sushil Kumar Mantri, Chartered
Accountant, Sehore as Panch/ Commissioner as proposed by the
plaintiff, kindly direct him to Submit Report before the Hon’ble
Court after conducting Audit of the Accounts.
F
Sehore, dated 23.12.1994

Sd/- illegible
Plaintiff
Through Counsel” G
The application was signed and moved by the plaintiff. It was not
signed and moved by the defendant.
7. On 23rd December 1994, the date on which the application was
filed and first listed, the First Additional District Judge, Sehore, passed
the following order: H
658 SUPREME COURT REPORTS [2022] 4 S.C.R.

A “COURT OF THE FIRST ADDITIONAL DISTRICT
JUDGE, SEHORE (M.P.)
Civil Suit No. 16B/93
Plaintiff along with Shri Badnairkar and Shri Amit Agrawal,
Advocate
B Opposite Parties along with Shri S.K. Verma, Advocate
This case is fixed for evidence today, but an application has been
submitted on behalf of the plaintiff to the effect that in this case
accounts have to be settled between the parties and this work
can be done only by a well-educated chartered accountant. In
C such a situation, if this matter is handed over to a chartered
accountant for decision, then both the parties will not have any
objection. A copy of this application was given to Mr. Verma. He
has no objection to being appointed as Panch in this case. In the
application itself, it has been proposed to appoint Shri Sushil Kumar
D Mantri, Chartered Accountant, Sehore as Panch of the case, on
which no party has any objection. Hence the application is accepted.
The fee of the arbitrator will be payable according to the fee
prescribed in the schedule of the Arbitration Council of India
immediately, if the Arbitrator demands fee, both the parties should
pay half the fee to the arbitrator before settlement of the matter.
E The final liability of the fee will depend on the settlement of the
fees of the case. A notice to this effect on behalf of the Sessions
Court for appointment of the arbitrator. The arbitrator should
present his decision within the stipulated period by giving notice to
the parties concerned and this matter should be placed before me
F at the appointed time after being presented in the Arbitration Court.
Dated: 23.12.1994"
8. Pursuant to the said order, the court sent the following letter
dated 23rd January 1991 to S.K. Mantri, Chartered Accountant, Sehore:
“COURT OF FIRST ADDITIONAL SESSIONS JUDGE,
G
SEHORE (M.P.)
Sr. No 11/ Sehore Dated – 23.01.1995
To,
Sh. S.K. Mantri
H Chartered Accountant
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA, 659
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE [SANJIV KHANNA, J.]

Sehore. A
In Suit No. 11/93 of this Court titled Modi Transport Vs. Tilhan
Sangh, you have as appointed as Panch. You by conducting audit
of all the disputed records (Accounts) of both the parties, kindly
send your Report by 22.04.1995.
On receiving your Remuneration Report, payment will be made B
to you in the Court.

Sd/-
(Satish Chandra Dubey)
First Additional District Judge, Sehore C
(M.P.)”
9. On 28th March 1995, S.K. Mantri appeared before the court
and applied for an extension of the date to submit the report, which time
was extended. Another order dated 22nd April 1995 states that the panch
decision was not submitted and that the panch must present the award D
within the stipulated period by giving notice to the parties concerned.
Thereafter, the court passed a number of orders recording the presence
of the parties and that they sought time to arrange the vouchers and the
records. Time was also given to verify the papers, which were checked
in the court in front of the parties’ representatives. Order dated E
18th May 1995 records that photocopy and laboratory analysis records
had been placed on record. Order dated 19th May 1995 refers to the
account summary submitted by the plaintiff regarding the pending bills
and amounts for the previous years. Information in that regard was sought
from the defendant. Therefore, it is clear that the proceedings remained
pending before the court. The suit was not treated as disposed of and F
decided in view of the order dated 23rd December 1994.
10. On 22nd June 1995, S.K. Mantri submitted his report before
the court stating that an amount of Rs.24,03,300/- (rupees twenty four
lakhs three thousand three hundred only) was due and payable by the
defendant to the plaintiff. This amount included interest of G
Rs. 9,43,007/- (rupees nine lakhs forty three thousand seven only)
computed @ 24% per annum on different amounts between 23rd February
1993 to 31st May 1995. He held that the plaintiff is entitled to get Rs.1.42p.
per tonne per kilometre. He held that “in my opinion the reduction of
one per cent per truck should be followed (sic-allowed) by a
H
660 SUPREME COURT REPORTS [2022] 4 S.C.R.

A reduction in contract for excess reduction”. Claim of the defendant
for a deduction on account of moisture and low quality coal was not
justified in the absence of evidence. Lastly, the plaintiff would be entitled
to receive rent and security charges, but because of lack of a clear
provision and a specific prayer, the amount could only be decided by the
court. Significantly the second paragraph of the report as to the basis on
B
which it was prepared reads:
“That the report has been prepared on the basis of records
(accounts) which have been presented to me by the plaintiff and
the opposition till date 31.05.95, which is presented before your
goodself.”
C
11. Order dated 22nd June 1995 passed by the court mentions that
the arbitrator has presented his report and documents along with the list.
If the parties have any objections regarding the arbitral report, then they
should appear on the next date.

D 12. The defendants filed objections, inter alia, on different grounds
challenging the report, which objections were decided by the court of
Additional District Judge, Sehore, vide order dated 16th May 1996. He
held that S.K. Mantri had been appointed as an arbitrator as provided
under Section 21 of the Arbitration Act. The defendant’s contention that
S.K. Mantri was appointed as a commissioner under Order XXVI Rule
E 9 of the Code of Civil Procedure, 19085 was rejected. Further, the
objections to the award filed on 01st November 1995 were beyond 30
days and barred by limitation. Counsel for the defendant was present in
the court when the arbitrator submitted the award in the court on 22 nd
July 1995. The allegation of misconduct on the ground that S.K. Mantri
F was a Chartered Accountant of the defendant, who was actually involved
in the preparation of accounts, was overruled as this objection was not
raised when S.K. Mantri was appointed as an arbitrator. Order dated
23rd December 1994 appointing S.K. Mantri as an arbitrator had attained
finality as it was not challenged by the defendant.

G 13. The first appeal preferred by the defendant before the High
Court has been dismissed vide the impugned judgment dated
19th September 1996. The High Court has affirmed the trial court’s view
that during the pendency of the suit, the matter was referred to arbitration
in terms of Section 21 of the Arbitration Act. S.K. Mantri, Chartered
5
H ‘the Code’, for short.
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA, 661
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE [SANJIV KHANNA, J.]

Accountant, was appointed as an arbitrator with the parties’ consent. A
The fee was payable to S.K. Mantri as per the prescribed arbitration
schedule. The objection that S.K. Mantri was the Chartered Accountant
of the defendant, was rejected as it could not be said that he had acted
in an unfair manner. That apart, the objections were filed beyond the
prescribed period of 30 days.
B
14. Defendant, namely, M.P. Rajya Tilhan Utpadak Sahkari Sangh
Maryadit, Pachama, District Sehore, Madhya Pradesh and the General
Manager and Managing Director of the Sahkari Sangh have accordingly
filed this appeal before us.
15. Section 21 of the Act, reads as under: C
“21. Parties to suit may apply for order of reference:- Where
in any suit all the parties interested agree that may matter in
difference between them in the suit shall be referred to arbitration,
they may at any time before judgment is pronounced apply in
writing to the Court for an order of reference.” D
The first condition for invoking Section 21 is that the parties to the
suit must agree that any matter of difference between them shall 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 E
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.6 The Indian Contract Act, 1872 states that an F
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 G
the parties to go for arbitration in respect of a subject matter in a pending
6
See Section 2 of the Contract Act which vide clause (a) defines proposal, clause (b)
which defines when proposal is accepted, clause (e) which states that every promise
and every set of promises, forming the consideration for each other, is an agreement and
clause (h) which states that an agreement enforceable by law is a contract Clause (h)
also has two sub-clauses. H
662 SUPREME COURT REPORTS [2022] 4 S.C.R.

A suit. Felthouse v. Bindley7 states that the parties agree when they wilfully
agree to perform certain acts or refrain from doing something. The parties
should be agreed about the subject matter at the same time and in the
same sense.
16. Interpreting Section 21 of the Act, a Full Bench of the Punjab
B and Haryana High Court in Firm Khetu Ram Bashamber Dass v.
Kashmiri Lal8 has held:
“Thus, before any matter involved in a suit pending in a Court can
be referred to arbitration (a) there must be an agreement amongst
all the parties interested that any matter in dispute between them
C in the suit shall be referred to arbitration; (b) if they come to such
an agreement, then they have to make an application in writing to
the Court concerned; and (c) thereafter, the Court has to pass an
order referring the dispute to the arbitrator agreed upon between
the parties.

D There can be no manner of doubt that if there is no agreement
between all the parties who are interested in the case and if the
application is not made on behalf of them all, the reference made
by the Court is bad and the award based on such a reference is
invalid in law. This view has been consistently taken by all the
High Courts. In Negi Puran Singh v. Hira Singh and others,
E while dealing with provisions of Civil Procedure Code, 1882, similar
to sections 21 and 23 of the Arbitration Act, Stanley, C.J. and
Banerji, J., of the Allahabad High Court held that if there was no
application signed by all the parties who were interested in the
settlement of the suit, the reference and the award given, thereafter,
F would be invalid. The same view was taken in Haswa v. Mahbub
and another, by another Division Bench of the same Court.
In Gopal Das v. Baij Nath, Sulaiman, J., (as he then was),
referred to a number of decisions of Allahabad and Calcutta High
Courts and observed as follows:—

G “*** it is necessary that all persons who are interested in the
matter which is in difference between the parties and which is
going to be referred to arbitration, should join. Although it is
not absolutely necessary that they should all sign the application

7
(1862) 142 ER 1037
H 8
1959 SCC OnLine Punj 102
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA, 663
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE [SANJIV KHANNA, J.]

made to the Court, it is necessary that they should agree to the A
reference.”
See also Tej Singh and another v. Ghase Ram and others ,
In Ram Harakh Singh v. Mumtaz Hasain, the question of
acquiescence and ratification was also considered.
Following Gopal Das v. Baij Nath and Subba Rao v. Appadurai , B
Ghulam Hasan, J., held that the foundation of the jurisdiction of
the Court is the consent of the parties and the subsequent
ratification does not validate the reference which was void ab
initio. Calcutta and Madras High Courts have also taken a similar
view. The question was considered by a Full Bench of the Calcutta C
High Court in Laduram v. Nandlal, Mookerjee, J., at page 114
of the report observed as follows:—
“The foundation of jurisdiction here is the agreement amongst
all the parties interested that the matters in difference between
them shall be referred to arbitration. If all the parties interested D
do not apply and yet an order of reference is made, the order
is illegal because made without jurisdiction. If an award follows
on the basis of that reference, it is equally illegal, because it is
founded upon a reference made without jurisdiction.”
See also Seth Dooly Chand v. Munuji and others and Khan E
Mohmed v. Chella Ram and another and Subha Rao v.
Appadurai.
In Subha Rao v. Appadurai, Devadoss, J., while considering the
provisions of para 1 of Schedule II, Civil Procedure Code,—which
in substance is the same as section 21 of the Arbitration Act— F
observed as follows:—
“What gives the Court jurisdiction to refer the matter to
arbitration is consent of all the parties. Consent subsequently
given cannot give jurisdiction to the Court which it did not
possess at the time when it referred the matter to arbitration.”
G
17. In our opinion, the aforesaid ratio expresses the correct position
in law. 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 preexisting arbitration agreement
subsists between the parties. In the absence of a preexisting arbitration
H
664 SUPREME COURT REPORTS [2022] 4 S.C.R.

A 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 decided by an arbitrator.
B
18. In the present case, the application dated 23rd December 1994
was moved by the plaintiff and it was not signed by the defendant. As
per the heading, the application was for the appointment of a
commissioner/arbitrator to conduct an ‘enquiry’ in respect of the accounts
C by a competent Chartered Accountant who shall act as a panch/
Commissioner and submit a report after conducting an audit of the
accounts. It was stated that the transactions between the parties are
fairly large in number and, therefore, it is necessary to handover the
aforesaid task to a Chartered Accountant. The application also states
that for the enquiry regarding accounts an opportunity of hearing should
D be given to both the parties. Name of S.K. Mantri, Chartered Accountant,
to act as panch/commissioner was proposed. The prayer in the
application was that the panch/ commissioner would submit the report
to the court after conducting an audit of the accounts. The application
cannot be read as an application moved on a prior agreement or
E consensus for reference to arbitration.
19. In view of the aforesaid discussion, we cannot read the
application dated 23rd December 1994 as an application by the parties
under Section 21 of the Arbitration Act. First, it is not an application for
reference of disputes to an arbitrator for adjudication but a request for
F the appointment of an expert, that is, a Chartered Accountant, who would
examine the accounts and papers and submit the report to facilitate the
court. The role assigned to S.K. Mantri is also clear from the letter of
appointment dated 23rd January 1995 which states that S.K. Mantri has
been appointed as a panch and would be conducting an audit of all
disputed accounts of both sides, and that he should send a report to the
G court.9 The letter also mentions that “on receiving your remuneration
report, payment would be made to you in the court”. Secondly, the
court’s jurisdiction to finally decide was not questioned or annihilated. In

9
Distinction between an arbitrator and expert; and an arbitrator and a commissioner has
H been examined and discussed below.
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA, 665
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE [SANJIV KHANNA, J.]

fact, the court always remained in the picture, exercised parley as an A
adjudicator having dominion over the subject matter of the suit.
20. However, the plaintiff has placed reliance on the order dated
rd
23 December 1994 to submit that the defendant had agreed to
arbitration. It is, therefore, necessary for us examine the contents of the
order. The first portion of the order records that the plaintiff has made B
an application for settlement of accounts and that the accounts can be
examined only by a well-educated Chartered Accountant. A copy of the
application had been handed over to the counsel for the defendant who
had no objection “to being appointed as Panch in this case”. This statement
is somewhat vague, but we do not read the statement as an indication or C
affirmation that the defendant had agreed to the appointment of an
arbitrator as an alternative and substitute to court adjudication. If it was
so, this should have been clearly stated to enable the parties to respond
and make statement. At best it was restricted to the appointment of an
expert/commissioner who would examine the accounts and submit his
report. D

21. The second portion of the order dated 23rd December 1994
states that in the application name of Sushil Kumar, Chartered Account,
as panch has been proposed to which no party had any objection.
Thereafter, the order records the direction of the court that the fee of
the arbitrator ‘shall be as prescribed in the schedule of the Arbitration E
Council of India and if the arbitrator demands a fee the same should be
equally shared by both the parties’. The last portion does not incorporate
and does not refer to any agreement or even concession given by the
defendant agreeing to arbitration as an alternative to court adjudication
and decision. The court had not disposed of the suit by referring the F
subject matter or a part of the subject matter of the suit to arbitration. In
our opinion the said order is for issuing a commission as the court had
accepted an application filed by the plaintiff for verification of the
accounts. The commissioner was to act as an expert or facilitator for
the court and submit a report to the court to help the court adjudicate
and finally decide the suit. G

22. We would elaborate these aspects and affirm our reasoning
with reference to case law and statutory provisions.

H
666 SUPREME COURT REPORTS [2022] 4 S.C.R.

A 23. This Court in Kerala State Electricity Board and Another
v. Kurien E. Kalathil and Another,10 had examined the question of
reference to arbitration in a case where there was no arbitration
agreement between the parties. The question that fell for consideration
was whether the High Court was right to refer the parties to arbitration
on oral consent given by the counsel without the written consent of the
B
party whom he represents. In this context, reference was made to Section
89 of the Code and the decision of this Court in Afcons Infrastructure
Ltd. v. Cherian Varkey Construction Co. (P) Ltd.,11 which is to the
following effect:
“33. Even if there was no pre-existing arbitration agreement, the
C
parties to the suit can agree for arbitration when the choice of
ADR processes is offered to them by the court under Section 89
of the Code. Such agreement can be by means of a joint memo or
joint application or a joint affidavit before the court, or by record
of the agreement by the court in the order-sheet signed by the
D parties. Once there is such an agreement in writing signed by
parties, the matter can be referred to arbitration under Section 89
of the Code; and on such reference, the provisions of the AC Act
will apply to the arbitration, and as noticed in Salem Bar (I), the
case will go outside the stream of the court permanently and will
not come back to the court.”
E
24. Thereafter, Kerala State Electricity Board (supra), made a
reference to a similar view expressed by this Court in Shailesh
Dhairyawan v. Mohan Balkrishna Lulla,12 which stated that resort to
arbitration in a pending suit by the orders of the court would only be
when parties agree for settlement of the dispute through arbitration.
F Thus, reference to arbitration is valid only when done by means of
agreement between the parties.
25. On the question whether a counsel can give consent for
arbitration on behalf of the parties, Kerala State Electricity Board
(supra) referred to the decision in Byram Pestonji Gariwala v. Union
G Bank of India,13 which has settled the law that a counsel should not act
on implied authority unless there is an exigency of circumstances
10
(2018) 4 SCC 793
11
(2010) 8 SCC 24
12
(2016) 3 SCC 619
13
H (1992) 1 SCC 31
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA, 667
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE [SANJIV KHANNA, J.]

demanding immediate adjustment of the suit by agreement or compromise A
and the signature of the party cannot be obtained without delay.
Reference was made to paragraph 37 in Gariwala case (supra), which
reads as under:
“37. We may, however, hasten to add that it will be prudent for
counsel not to act on implied authority except when warranted by B
the exigency of circumstances demanding immediate adjustment
of suit by agreement or compromise and the signature of the party
cannot be obtained without undue delay. In these days of easier
and quicker communication, such contingency may seldom arise.
A wise and careful counsel will no doubt arm himself in advance
with the necessary authority expressed in writing to meet all such C
contingencies in order that neither his authority nor integrity is
ever doubted. This essential precaution will safeguard the personal
reputation of counsel as well as uphold the prestige and dignity of
the legal profession.”
26. The Kerala State Electricity Board (supra) decision rightly D
records that referring the parties to arbitration has serious civil
consequences, substantial and procedural. Once an award is passed, it
can be only challenged on limited grounds. When there was no arbitration
agreement between the parties, without joint application the High Court
ought not to have referred the matter to arbitration. This Court in Bihar E
State Mineral Development Corpn. v. Encon Builders (I) (P) Ltd.14
emphasised that the arbitration agreement must contain a broad
consensus between the parties that the disputes and differences should
be referred to a private tribunal. Further, such a tribunal must be an
impartial one.
F
27. In ITC Ltd. v. George Joseph Fernadez and Another,15 this
Court had interpreted Section 2016 of the Contract Act, which provides
that where both the parties to an agreement are under a mistake as to a
matter of fact essential and integral to the agreement, the agreement is
void. However, this does not apply if the mistake relates to an erroneous
14
(2003) 7 SCC 418
G
15
(1989) 2 SCC 1
16
20. Agreement void where both parties are under mistake as to matter of
fact.—Where both the parties to an agreement are under a mistake as to a matter of fact
essential to the agreement, the agreement is void.
Explanation.—An erroneous opinion as to the value of the thing which forms the
subject-matter of the agreement, is not to be deemed a mistake as to a matter of fact. H
668 SUPREME COURT REPORTS [2022] 4 S.C.R.

A opinion as to the valuation of the thing that forms the subject matter of
the agreement. A mistake as to the quality of an article or attributes on
the other hand is a debatable question as it may not always lead to the
conclusion that the contract is void. Further, this provision relating to the
voidness of the contract does not apply to cases of a common mistake
of fact, as distinguished from a mutual mistake made or entertained by
B
each of the persons towards or with regard to each other. Where a
party is mistaken as to the other’s intention, though neither realises that
the respective promises have been misunderstood, there is a mutual
mistake. The ascertainment of whether or not there was a mutual mistake
is to be ascertained by applying what reasonable third parties would
C infer from their words or conduct. The mistake or error must be such
that it either appears on the face of the contract that the matter as to
which the mistake existed was an essential and integral element of the
subject matter of the contract or was an inevitable inference from the
nature of the contract that all parties so regarded it. A contract is void at
law only if some term can be implied in both offer and acceptance,
D
which prevents the contract from coming into force. These principles
are relevant when the dispute arises as to the existence of a pre-existing
arbitration agreement. Albeit in the case of Section 21, the requirement
is even stricter – the “parties interested agree…in writing before the
court”, which is an inflexible mandate which requires that the parties
E must agree, or affirm an agreement before the court to refer the subject
matter as agreed to arbitration.
28. This Court in K.K. Modi v. K.N. Modi and Others,17 after
referring to Mustill and Boyd in their book on Commercial Arbitration,
pointed out that there is an immense variety of tribunals differing
F fundamentally as regards their composition, their functions and sources
from which their powers are derived. Tribunals, including those which
derive their jurisdiction from the consent of the parties, apart from the
arbitration tribunal, may be persons who are not properly called tribunals,
but by mutual consent entrusted with the power to affect the legal rights
of two parties inter se in a manner creating legally enforceable rights to
G do so by a procedure of a ministerial but not judicial in nature, such as
persons appointed by contract to value property or certify compliance of
building works with the specification. Other examples given are of
conciliation tribunals of local religious bodies or privately appointed

17
H (1998) 3 SCC 573
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA, 669
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE [SANJIV KHANNA, J.]

persons to act as mediators. Such consent terms lack some of the A
attributes necessary for an arbitration agreement. The judgment enlists
some of the attributes which must be present in an agreement to be
considered as an arbitration agreement as:
“17... (1) The arbitration agreement must contemplate that the
decision of the tribunal will be binding on the parties to the B
agreement,
(2) that the jurisdiction of the tribunal to decide the rights of parties
must derive either from the consent of the parties or from an
order of the court or from a statute, the terms of which make it
clear that the process is to be an arbitration, C
(3) the agreement must contemplate that substantive rights of
parties will be determined by the agreed tribunal,
(4) that the tribunal will determine the rights of the parties in an
impartial and judicial manner with the tribunal owing an equal
obligation of fairness towards both sides, D
(5) that the agreement of the parties to refer their disputes to the
decision of the tribunal must be intended to be enforceable in law
and lastly,
(6) the agreement must contemplate that the tribunal will make a
E
decision upon a dispute which is already formulated at the time
when a reference is made to the tribunal.”
29. K.K. Modi (supra) refers to Russell on Arbitration,18 which
observes that whether a chosen form of dispute resolution is expert
determination or arbitration is a matter of construction of a contract that
F
involves an objective enquiry into the intention of the parties. Specific
words like ‘arbitrator’, ‘arbitration proceedings’ or ‘an expert and not
an arbitrator’ can be used to describe how the dispute resolver is to act.
However, the words are persuasive, although not always conclusive.
The authors on the distinction between arbitration and an expert’s opinion
have elucidated that an arbitral tribunal arrives at its decision based on G
the evidence and submissions of the parties by applying the law and its
principles, whereas an expert decides on his own expert opinion, applying
his own expertise.19
18
21st Edn., at page 37, para 2-014
19
Russel on Arbitration, 21st Edition H
670 SUPREME COURT REPORTS [2022] 4 S.C.R.

A 30. In Bharat Bhushan Bansal v. U.P. Small Industries
Corporation Ltd,20 reference was made to S.K. Chawla’s Law of
Arbitration and Conciliation21 to highlight that an expert primarily acts
on his knowledge and experience supplemented if he thinks fit by: (i) his
own investigations; and/or (ii) material (which need not conform to the
rules of ‘evidence’) put before him by either party. On the other hand,
B
an arbitrator primarily acts on the material put before him by the parties.
Determination by an expert would involve less to thorough investigation.
Reference is also made to Hudson’s Building and Engineering
Contracts,22 which distinguishes a certifier and an arbitrator in a building
contract observing that the certifier in a construction contract will often
C perform an administrative rather than a judicial function. Certifiers have
been described as preventers of disputes in contradistinction with
arbitrators, whose function can only arise once a dispute is in existence.
31. With regard to the significance and effect of the report submitted
by an expert, this Court in Dayal Singh and Others v. State of
D Uttaranchal23 states that the purpose of an expert opinion is primarily
to assist the court in arriving at a final conclusion. Such report is not
binding upon the court. The court is expected to analyse the report, read
it in conjunction with the other evidence on record and then form its final
opinion as to whether such report is worthy of reliance or not. An expert
report, duly proved, has its evidentiary value but such appreciation has
E to be within the limitations prescribed and with careful examination by
the court. Simply put, an expert deposes and does not decide,24 his duty
is to furnish the court with necessary scientific/technical criteria so as to
enable the judge to form his own independent judgment by the application
of these criteria to the facts proved in evidence.25
F 32. There is also a distinction between the scope and functions of
an arbitral tribunal and a commissioner appointed under Order XXVI
Rules 9 and 1126 of the Code. For submission to arbitration, there must
20
(1999) 2 SCC 166
21
Justice S.K. Chawla Law of Arbitration and Conciliation at Page 164.
G 22
See Eleventh Edition, Volume 1, in Paragraph 6.065
23
(2012) 8 SCC 263
24
Murari Lal v. State of M.P. (1980) 1 SCC 704
25
Vide Lord President Cooper in Davis v. Edinburgh Magistrate, 1953 SC 34 quoted by
Professor Cross in his Evidence.
26
9. Commissions to make local investigations.– In any suit in which the Court
deems a local investigation to be requisite or proper for the purpose of elucidating any
H
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA, 671
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE [SANJIV KHANNA, J.]

be an arbitration agreement or an agreement in terms of Section 21 of A
the Act that the difference or dispute between the parties for which they
intend to be determined in a quasi-judicial manner. Commissioners are
appointed by the court. Appointment may be with consent of the parties,
or even when there is objection to the appointment. Preexisting agreement
or the requirement that the parties agree before the court, as is mandatory
B
in case of arbitration, is not necessary when a court directs appointment
of a commissioner. In the case of a reference to a commissioner, all that
the parties expect from the commissioner is a valuation/ examination of
the subject matter referred, which he would do according to his skill,
knowledge and experience, which may be without taking any evidence
or hearing argument.27 In light of the aforesaid decisions, we would like C
to introduce the principle of a ‘facilitator’ which a court may appoint, be
it a commissioner or an expert, for a specific purpose and cause for
ascertainment of a fact which may be even disputed. In some cases, the
commissioner may even hear the parties and give his expert opinion
based on the material or evidence produced by the parties before the
D
commissioner, as in this case when the court appointed a Chartered
Account who as an expert was required to give his opinion on the
statement on accounts to facilitate and help the court arrive at a fair and
just decision. It was to save the court’s time and cut delay in the decision
by the court.
33. Order XXVI Rule 9 of the Code gives wide powers to the E
court to appoint a commissioner to make local investigations which may
be requisite or proper for elucidating any matter in dispute, ascertaining
the market value of any property, account of mesne profit or damages
or annual net profits. Under Order XXVI Rule 11, the court has the
F
matter in dispute, or of ascertaining the market-value of any property, or the amount of
any mesne profits or damages or annual net profits, the Court may issue a commission
to such person as it thinks fit directing him to make such investigation and to report
thereon to the Court:
Provided that, where the State Government has made rules as to the persons
to whom such commission shall be issued, the Court shall be bound by such rules.
G
xx xx xx

11. Commission to examine or adjust accounts.– In any suit in which an
examination or adjustment of the accounts is necessary, the Court may issue a commission
to such person as it thinks fit directing him to make such examination or adjustment.
27
Halsbury, Vol.1, Edn. 2 at Pg. 622
H
672 SUPREME COURT REPORTS [2022] 4 S.C.R.

A power to issue a commission in a suit, in which examination of adjustment
of accounts is necessary, to a person as it thinks fit directing him to
make such examination or adjustment. When a court issues such a
commission to such a person, it can direct the commissioner to make
such an investigation, examination and adjustment and submit a report
thereon to the court. The commissioner so appointed does not strictly
B
perform a ‘judicial act which is binding’ but only a ‘ministerial act’.
Nothing is left to the commissioner’s discretion, and there is no occasion
to use his judgment or permitting the commissioner to adjudicate and
decide the issue involved; the commissioner’s report is only an opinion
or noting, as the case may be with the details and/or statement to the
C court the actual state of affairs. Such a report does not automatically
form part of the court’s opinion, as the court has the power to confirm,
vary or set aside the report or in a given case issue a new commission.
Hence, there is neither abdication nor delegation of the powers of
functions of the court to decide the issue. Sometimes, on examination of
the commissioner, the report forms part of the record and evidence.28
D
The parties can contest an expert opinion/commissioner’s report, and
the court, after hearing objections, can determine whether or not it should
rely upon such an expert opinion/commissioner’s report. Even if the
court relies upon the same, it will merely aid and not bind the court. In
strict sense, the commissioners’ reports are ‘non-adjudicatory in nature’,
E and the courts adjudicate upon the rights of the parties.
34. By Act 18 of 2018, Section14A29 has been inserted in the
Specific Relief Act, 1963. The provision states that without prejudice to
28
A. Nagarajan v. A. Madhanakumar 1996 SCCOnLine Mad 17
29
14A. Power of court to engage experts.—(1) Without prejudice to the generality of
F the provisions contained in the Code of Civil Procedure, 1908 (5 of 1908), in any suit
under this Act, where the court considers it necessary to get expert opinion to assist it
on any specific issue involved in the suit, it may engage one or more experts and direct
to report to it on such issue and may secure attendance of the expert for providing
evidence, including production of documents on the issue.
(2) The court may require or direct any person to give relevant information to the
expert or to produce, or to provide access to, any relevant documents, goods or other
G property for his inspection.
(3) The opinion or report given by the expert shall form part of the record of the suit;
and the court, or with the permission of the court any of the parties to the suit, may
examine the expert personally in open court on any of the matters referred to him or
mentioned in his opinion or report, or as to his opinion or report, or as to the manner
in which he has made the inspection.
(4) The expert shall be entitled to such fee, cost or expense as the court may fix, which
shall be payable by the parties in such proportion, and at such time, as the court may
H
direct.]
M.P. RAJYA TILHAN UTPADAK SAHAKARI SANGH MARYADIT, PACHAMA, 673
DISTRICT SEHORE v. M/S. MODI TRANSPORT SERVICE [SANJIV KHANNA, J.]

the provisions of the Code in any suit under the Act in question where a A
court considers it necessary to get expert opinion to assess it on a specific
issue involved in the suit, it may engage one or more experts and direct
to report to it on such issue. The court may secure the expert’s attendance
for providing evidence, including the production of documents on the
issue. The opinion or report of the expert would form part of the record
B
of the suit as is the case with the commissioner’s report. With the court’s
permission, the parties to the suit may examine the expert personally in
the open court on any of the matters referred to him or as to his opinion
or report or as to the manner in which he has made the inspection.
35. The matter referred to S.K. Mantri was limited to examination
of the accounts. The issues and questions of dispute in the suit were far C
broader and wider. These included questions as to the agreed price or
the rate of transportation in view of the letter dated 05th June 1992,
which was withdrawn by letter dated 30th September 1992, computation
of the transportation costs payable to the plaintiff under the contract in
case the coal delivered was within or beyond the 1% stipulation, whether D
or not the defendants were right in making deductions on account of bad
quality coal, higher moisture content etc. whereby the weight of the coal
had increased, delay in delivery on the part of the plaintiff, whether the
defendants are entitled to charge interest while making recoveries, etc.
It is interesting to note that the S.K. Mantri himself did not decide whether
or not the plaintiff is entitled to rent of the plot or security charges E
observing that this was an aspect for the court to decide. However, he
forgot that his ‘jurisdiction’ was limited to checking and verifying accounts
and not deciding any issue or questions beyond the accounts on issues
and questions referred to above.
36. In view of the aforesaid discussion, we allow the present appeal F
and set aside the impugned order dated 19th September 2019 of the High
Court affirming the order dated 16th May 1996 passed by the Additional
District Judge, Sehore Camp Astha. It is held that the report of the
Chartered Accountant is not an award and is to be treated as a report of
a commissioner appointed by the Court under Order XXVI Rule 11 of G
the Code. Objections of the defendant to the said report will be considered
in light of the aforesaid discussion and our findings, and after hearing
both the sides the trial will proceed as per law. We clarify that the
observations made in this judgment are for the disposal of the present
appeal. The civil suit will be decided on merits without being influenced
H
674 SUPREME COURT REPORTS [2022] 4 S.C.R.

A by any findings recorded by us that only relate to the limited aspect of
the report dated 22nd June 1995 of the commissioner.
37. All pending applications are disposed of. There would be no
order as to costs.

B Nidhi Jain Appeal allowed.
(Assisted by : Tamana, LCRA)

C

D

E

F

G

H