Case Note & Summary
The appellants (plaintiffs) filed a suit for possession and mesne profits in respect of a three-storey commercial-cum-residential building situated at Sarafa Bazar, Lashkar, Gwalior. The suit property was originally owned by Pandit Krishna Biharilal, who mortgaged it to Baburao Suryavanshi in 1948. Upon default, the property was auctioned in Execution Case No. 29/56-1963, and on 07.04.1964, the original plaintiff Haridas purchased it as the successful bidder. The plaintiffs claimed title through the auction sale. The defendants resisted the suit, contending that an earlier arbitration award between the defendants and the original owner Krishna Biharilal had attained finality and that the award recognized the defendants' rights over the property. The Trial Court dismissed the suit, holding that the arbitration award operated as res judicata. The High Court affirmed this decision. The Supreme Court allowed the appeal, holding that the plaintiffs were not parties to the arbitration proceedings and had purchased the property in a court auction. The principle of res judicata under Section 11 CPC does not apply to an arbitration award when the party sought to be bound was not a party to the arbitration. The award is binding only on the parties to the arbitration and their privies. The Court set aside the judgments of the High Court and Trial Court and remanded the matter for fresh consideration on merits.
Headnote
A) Civil Procedure - Res Judicata - Arbitration Award - Section 11, Code of Civil Procedure, 1908 - The principle of res judicata does not apply to an arbitration award when the party sought to be bound was not a party to the arbitration proceedings. The plaintiffs, who purchased the suit property in a court auction, were not parties to the earlier arbitration between the defendants and the original owner. Therefore, the award cannot be used to bar the plaintiffs' suit for possession and mesne profits. (Paras 2-10) B) Arbitration - Binding Effect - Third Party - Section 35, Arbitration Act, 1940 - An arbitration award is binding only on the parties to the arbitration and their privies. A third party who acquires title by court auction is not bound by an award to which they were not a party. The High Court erred in affirming the dismissal of the suit on the ground that the award had attained finality. (Paras 2-10)
Issue of Consideration
Whether an arbitration award in relation to the suit property, which had attained finality, operates as res judicata against the plaintiffs who were not parties to the arbitration and who purchased the property in a court auction sale.
Final Decision
The Supreme Court allowed the appeal, set aside the judgments of the High Court and Trial Court, and remanded the matter to the Trial Court for fresh consideration on merits, uninfluenced by the arbitration award.
Law Points
- Res judicata
- Arbitration award binding only on parties
- Third party purchaser not bound by award
- Section 11 CPC
- Section 35 Arbitration Act
- 1940
