Private arbitral award cannot usually defeat a suit unless fully performed or later accepted as settlement.
An unfiled private arbitral award under the Indian Arbitration Act, 1940 cannot ordinarily be pleaded as a defence to a suit on the original cause of action, because the Act requires questions about an award's existence, validity and effect to be dealt with only through the statutory procedure. The position is different where the award has been fully performed, in which case the defence rests on accord and satisfaction. A later mutual acceptance and acting upon the award can also create a fresh defence based on settlement by agreement. If arbitrators send the award to court, it may still be filed, and its validity may then be challenged under the Act's remedies.
Issues: (i) Whether an award made on a private reference to arbitration, but not filed in Court under the Indian Arbitration Act, 1940, can be pleaded as a defence to a suit based on the original cause of action; (ii) whether such an unfiled award can nevertheless be relied on where its terms have been fully performed by one party; (iii) whether later acceptance of an unfiled award by the parties can constitute a fresh and binding basis of defence; and (iv) whether an award sent to Court by the arbitrators can still be filed in Court after the period of limitation and, if so, whether its validity may then be questioned.
Issue (i): Whether an award made on a private reference to arbitration, but not filed in Court under the Indian Arbitration Act, 1940, can be pleaded as a defence to a suit based on the original cause of action.
Analysis: The statutory scheme of the Indian Arbitration Act, 1940 treated the filing of the award and the passing of judgment and decree in terms of it as integral steps in the enforcement of an arbitral decision. The Court held that Sections 31 to 33 barred the parties from agitating questions concerning the existence, validity or effect of an award otherwise than in the manner provided by the Act. The distinction between enforcing an award by suit and setting it up as a defence was rejected, because permitting an unfiled award to be used defensively would enable indirect enforcement of an award and would compel the Court to examine its validity, which the Act prohibits.
Conclusion: An unfiled award cannot ordinarily be pleaded as a defence to a suit on the original cause of action.
Issue (ii): Whether such an unfiled award can nevertheless be relied on where its terms have been fully performed by one party.
Analysis: The Court recognised that arbitration rests on contract and that, where one party has completely performed the obligations imposed by the award, the original claim is discharged by accord and satisfaction. In such a case, the defence is not founded on the mere existence of an unfiled award as a legal bar, but on the completed performance of the contractual settlement embodied in it.
Conclusion: Yes. Full performance of the award by one party affords a valid defence to an action on the original cause of action.
Issue (iii): Whether later acceptance of an unfiled award by the parties can constitute a fresh and binding basis of defence.
Analysis: Where the parties subsequently accept and act upon the arrangement contained in the award, the defence rests on their mutual settlement and conduct, not on the award as such. Such a plea does not require the Court to decide the existence, effect or validity of an award in the forbidden sense, because the binding force arises from the parties' later agreement and voluntary acts.
Conclusion: Yes. Subsequent acceptance and acting upon the award can furnish a fresh and binding defence based on settlement by agreement.
Issue (iv): Whether an award sent to Court by the arbitrators can still be filed in Court after the period of limitation and, if so, whether its validity may then be questioned.
Analysis: The Court held that where the award is forwarded to Court by the arbitrators, the limitation provisions do not prevent its being filed in accordance with the Act. Once the award comes into Court, the party affected is entitled to move within the time allowed by law to challenge it under the statutory procedure. The filing stage therefore remains open, and the validity of the award may then be examined through the remedies provided by the Act.
Conclusion: Yes. If the award is sent by the arbitrators, it may be filed in Court, and its validity may then be challenged in the manner allowed by law.
Final Conclusion: The appeal succeeded to the extent that the remand order was upheld, while the Court settled the governing principles on the limited circumstances in which an unfiled arbitral award may affect a suit on the original cause of action.
Ratio Decidendi: Under the Indian Arbitration Act, 1940, an unfiled private arbitral award cannot ordinarily be used to defeat a suit on the original cause of action, because the Act requires disputes concerning the award to be pursued only through the statutory procedure; only completed performance or subsequent consensual acceptance of the award can operate as a defence by way of accord and satisfaction or fresh agreement.
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