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M.P. Rajya Tilhan Utpadak Sahakari Sangh Maryadit, Pachama, District Sehore vs M/s Modi Transport Service

Civil Appeal · 2022 INSC 553Decided 11 May 2022
Civil Appeal No. 1973 of 2022
Sanjiv Khanna · Bela M. Trivedi

Background

A transport firm sued a cooperative sugar/oilseed body for settlement of accounts relating to coal transportation charges, alleging wrongful deductions; the defendant contested, alleging poor-quality coal delivery. During the suit, the trial court appointed a Chartered Accountant, S.K. Mantri, to examine the disputed accounts and report back. After he submitted a report favouring the plaintiff, the defendant objected, but courts below treated the report as a binding arbitral award made under Section 21 of the Arbitration Act, 1940, and dismissed the objections partly on limitation grounds.

Decision Breakdown

The Supreme Court held that Section 21 of the Arbitration Act requires a clear, considered agreement by all parties to substitute court adjudication with private arbitration: mere non-objection to a proposed Chartered Accountant examining accounts is not such an agreement. Examining the actual application and the court's order dated 23 December 1994, the Court found neither referred to arbitration as a substitute for the court's decision; rather, the CA was appointed to audit accounts and assist the court, akin to a "commissioner" under Order XXVI Rules 9 and 11 of the CPC. The Court drew a detailed distinction between an arbitrator (who adjudicates on evidence and binds the parties), an expert/commissioner (who merely assists the court with an opinion that the court can accept, modify or reject), and a certifier. It set aside the High Court's judgment, held the CA's report was not an arbitral award but only a commissioner's report, and remanded the matter for the trial court to consider objections to that report and decide the original suit on merits.

Lesson Learnt

Getting a court to appoint a neutral Chartered Accountant or expert to verify accounts during a lawsuit does not automatically convert that process into binding arbitration. Courts and litigants must ensure there is a clear, written, mutual agreement to go to arbitration if that is genuinely intended; otherwise the expert's report remains only advisory material for the judge, not a final, binding decision.

Official source (sci.gov.in)View Judgment (PDF)

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