M.P. Rajya Tilhan Utpadak Sahakari Sangh Maryadit Vs Modi Transport Service (Supreme Court of India)
The Supreme Court considered whether the parties had agreed to refer the subject matter of a pending civil suit, or any part of it, to arbitration under Section 21 of the Arbitration Act, 1940. The suit had been filed by the respondent for settlement of transportation accounts, recovery of amounts allegedly due, and interest arising out of agreements for transportation of coal. The parties disputed transportation rates, deductions for shortages, coal quality, moisture content, delays, interest, rent and security charges, and other issues. During the pendency of the suit, the plaintiff filed an application seeking appointment of a Chartered Accountant as a “Panch/Commissioner” to enquire into the accounts and submit a report. The application was signed only by the plaintiff. The trial court accepted the application, appointed the Chartered Accountant, referred to him as an arbitrator in its order, and directed him to submit his decision. The Chartered Accountant submitted a report quantifying amounts payable, after which the trial court treated it as an arbitral award under Section 21 and rejected the defendant’s objections. The High Court affirmed that view.
Examining Section 21, the Supreme Court held that reference to arbitration during the pendency of a suit requires agreement of all interested parties, reflected in a written application before the court, demonstrating consensus to forgo adjudication by the court and have the dispute decided by an arbitrator. The Court referred to precedents explaining that arbitration depends upon mutual agreement and that consent is the foundation of the court’s jurisdiction under Section 21. It also distinguished arbitration from expert determination and the appointment of commissioners under Order XXVI Rules 9 and 11 of the Code of Civil Procedure, observing that commissioners and experts assist the court by furnishing reports, whereas arbitrators adjudicate disputes and render binding decisions.
