The Supreme Court ruled 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.
On 03rd September 1993, the respondent M/s. Modi Transport Service, a partnership firm, had filed a civil suit in the Court of the District Judge, Madhya Pradesh, 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. 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 (sic) with interest @ 2%.
The plaintiff contended that it 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 further submitted that as required, it had furnished a bank guarantee of 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. The defendant had also made false and wrong deductions on account of the high moisture content in the coal.
The defendant argued that 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 defendant further contended that it 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 a huge quantity of coal for six to seven months after the coal was lifted from the coal mines.
The division bench of Justice Sanjiv Khanna and Justice Bela M. Trived stated that there is 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 dispute between the parties for which they intend to be determined in a quasi-judicial manner. Commissioners are appointed by the court.
The court said that 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 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.
The court added that the commissioners’ reports are ‘non-adjudicatory in nature’, and the courts adjudicate upon the rights of the parties.
The court held that the matter referred to S.K. Mantri (Chartered Accountant) 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 in view of the letter, which was withdrawn by later.
The court noted that the S.K. Mantri himself did 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 on issues and questions referred.
The court allowed the present appeal and set aside the impugned order of the High Court affirming the order passed by the Additional District Judge, Sehore.
The court further 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.
The court clarified that the observations made in the judgment are for the disposal of the present appeal. The civil suit will be decided on merits without being influenced by any findings recorded by it that only relate to the limited aspect of the report of the commissioner.
Case title: M.P. Rajya Tilhan Utpadak Sahakari Sangh Maryadit, Pachama, District Sehore and Others v/s M/S. Modi Transport Service
Citation: CIVIL APPEAL NO. 1973 OF 2022