Report No. 144
6.3.2. Question for consideration.-
A controversy exists as to the applicability of this rule to arbitrations.
6.3.3. The Delhi High Court has held that Order 2, rule 2 does not apply to arbitrations on the reasoning that the arbitrator is not a "court". The High Court has described Order 2, rule 2, as a penal provision, "draconian in nature", and has held it to be unjust to apply the rule to arbitrations.1 The Gujarat High Court, however, holds the rule to be applicable to arbitrations.2 The Calcutta view on the subject has been fluctuating.3
1. Alkarma, New Delhi v. DDA, AIR 1981 Del 230.
2. See Gujarat cases, infra.
3. See Calcutta cases, infra.
6.3.4. In a Calcutta case decided in 1964, there are dicta to the effect that the principle of the rule does not apply to arbitration proceedings.1 However, in a later case of the same High Court, it was held that the principle of this rule applies to arbitration proceedings in appropriate cases.2
1. Kerorimall v. Union of India, AIR 1964 Cal 545 (548), para. 10 (P.C. Mallick, J.).
2. Jiwani Engg. Works Pvt. Ltd. v. Union of India, AIR 1978 Cal 228 (Sabyasachi Mukharji, J.).
6.3.5. In Kerorimall v. Union of India, Calcutta High Court1has held that the same dispute, once referred and embodied in an award, cannot be the subject-matter of a fresh reference and, to that extent, the rule of res judicata applies to arbitration proceeding. But it further held that there is no authority for the proposition that disputes which could have been raised, but were not raised previously, could not be raised on the principle of constructive res judicata.
It proceeded to observe that "there is authority for the proposition that the principle of Order 2, rule 2 is not applicable to arbitration proceedings. It is not necessary for me in the instant case to consider to what extent the rule of constructive res judicata is applicable to arbitration proceedings because I hold on facts that the instant dispute was expressly left out of consideration in the previous arbitration proceeding on the ground that the arbitrator locked jurisdiction to entertain the dispute".
1. AIR 1964 Cal 545.
6.3.6. Following observations of Ronkin, J. from Balmukund's case1 are quoted in the above case2:-
"Order II, rule 2 is a special provision doubtless of the completes wisdom but unknown to the common law one moreover which attaches an indiscriminate and indeed incalculable penalty to a condition difficult to define. There is I think a cardinal error involved in any attempt to appeal even to the principle on which the rule is founded for the jurisdiction of an arbitrator depends not upon the existence of a claim or the accrual of the cause of action but upon existence of a dispute."
1. Balmukund Ruia v. Gopiram Bhotika, AIR 1920 Cal 808 (2).
2. Kerorimall v. Union of India, AIR 1964 Cal 545.
6.3.7. The Delhi High Court1 has also held Order II, rule 2 to be not applicable to arbitrations following the case of Kerorimall, AIR 1964 Cal 545. The Delhi High Court has dissented from the later judgment of the Calcutta High Court by Sabyasachi Mukharji, J. (as he then was) in the case of Jiwani Engineering Works v. Union of India, AIR 1978 Cal 228 (Sabyasachi Mukharji, J.). The Delhi High Court has observed as under:
"A learned Judge of the Calcutta High Court (Sabyasachi Mukharji, J.) held that though Order II, rule 2 does not in terms apply to proceedings under the Act there is no reason why the principle thereof should not be applied to arbitration proceedings in appropriate cases. With respect to the learned judge, I feel bound to differ on the applicability of Order II, rule 2 to arbitration proceedings.
The reason is that the arbitrator is not a Court. Order II, rule 2 applies to proceedings before a Court. It cannot apply to proceedings before the arbitrator. It is a penal provision. It is draconian in nature. To apply Order II, rule 2 to arbitrations will not only be illegal but also unjust. I do not deny that the principle of res judicata applies to arbitration. That doctrine is founded in public policy and applies equally to suits and awards."
1. Alkarma, New Delhi v. DDA, AIR 1981 Del 230.
6.3.8. The Gujarat High Court has, however, disagreed with the view taken by the Calcutta and Delhi High Courts. It has said1 "it is not possible for me to agree with the view taken by the Calcutta High Court in Jiwani Engineering Works2. The learned Judge of the Delhi High Court has held that principle of res judicata apply to arbitration because that doctrine is founded in public policy and applies equally to suits and awards. Order 2, rule 2 is an analogous principle founded on public policy. The learned Judge of the Delhi High Court has observed that such provision of Order 2, rule 2 is penal and to apply the same to arbitrations would be illegal and unjust.
I am with respect unable to agree with any of these adjectives. If rule of res judicata is founded on rational and just public policy it would equally apply to the extension of the same principle. In the case of Balmukund Ruia, AIR 1920 Cal 808(2), Rankin, J. had observed that Order 2, rule 2 is a special provision doubtless of the completes wisdom but unknown to the common law one moreover which attaches art indiscriminate and indeed incalculable penalty to a condition difficult to define. Although I am unable to agree with the latter part of that above quotation it is clear that the provision of Order 2, rule 2 is a rule of completest wisdom.
If it were to attach any indiscriminate and indeed incalculable penalty to a condition difficult to define it would not be rule of completest wisdom. The rule is merely to the effect that a person shall include whole of his claim in respect to the same cause of action and omission to sue in respect of any portion, of his claim would be barred. This is a salutary provision which prevents multiplicity of proceedings and avoids the vies of splitting up the cause of action as observed by the learned judge in the case of Jiwani Engineering Works.
This principle ought to apply with greater force to the arbitration proceeding, which is meant for speedy disposal of disputes and if successive disputes on the same cause of action could be raised that would defeat the very object of the arbitration proceedings. The claim before the Arbitrator is clearly in the nature of the suit and instead of a Civil Court adjudicating upon the claim, a separate forum of arbitrator adjudicates upon the same claim. Therefore, for the purpose of (arbitration) Order 2, rule 2 the principle of constructive res judicata ought to apply naturally to arbitration proceedings. I am in respectful and complete agreement with the reasoning and conclusion of the learned Judge in the case of Jiwani Engineering Works:
"The judgment of the Supreme Court in the case of Munshi Ram v. Banwari Lal, AIR 1962 SC 903, indirectly kinds support to this reasoning. In that case, after arbitration award, the patties had arrived at a different settlement under Order 23, rule 3 and not in terms of the award and the Court held that the provisions of Order 23, rule 3 would be applicable. The Supreme Court observed that "the power to record such an agreement and to make it a part of the decree whether by including it in the operative portion or in the schedule to the decree, will follow from the application of the Civil Procedure Code by section 41 of the Arbitration Act and also section 141 of the Code".
Accordingly, the Gujarat High Court held that where disputes arose between the Government and the construction contractor, and, on the application of the contractor, the previous arbitration was made for a certain amount claimed as compensation due to delay or extension of time limit by the Government for execution of the order, a subsequent application for reference to arbitration claiming a certain amount under a different head based on the same cause of action (delay of extension of time limit) would be barred.3
1. Kothari & Associate, Baroda v. State of Gujarat, AIR 1985 Guj 42 (45, 46), para. 10 (RA. Mehta, J.).
2. Jiwani Engg. Works Ltd. v. Union of India, AIR 1978 Cal 228 (Sabyasachi Mukharji, J.).
3. Kothari and Associates, Baroda v. State of Gujarat, AIR 1985 Guj 42 (44, 45, 46), paras. 6-10.
6.3.9. The matter needs attention. It seems desirable to provide that the provisions of Order 2, rule 2 apply to arbitrators. Order 2, rule 2 is not a penal provision, but is intended to prevent multiplicity of suits. The reasoning elaborated in the Gujarat judgment in support of applying Order 2, rule 2 to arbitrations appears to be very persuasive.
6.3.10. It may be that Order 2, rule 2 is a stringent provision. But such a stringent rule appears to be needed in the interest of avoiding multiplicity of arbitration claims. There is no reason why the principle applicable to ordinary litigation should not apply to arbitrations as well. Provisions in Order 2, rules 1 and 2 of the Code, which prohibit the splitting of claim under the same cause of action are aimed at avoiding multiplicity of suits on the same cause of action.1
In fact, Order 2, rule 1 itself declares that its object is to prevent further litigation concerning them, i.e., concerning the subject in dispute. The legislative intent is that, as far as possible, all matters in dispute between the parties relating to the same transaction should be disposed off in the same suit.2 This object is relevant equally to arbitrations, as to suits.
1. Mulla Code of Civil Procedure, (1984), Vol. 2, p. 883.
2. Saral Chand v. Mohun Bibi, 1898 ILR 25 Cal 371 (390).