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Patel Bros. Vs. Shree Meenakshi Mills, Limited - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtMumbai
Decided On
Case NumberO.C.J. Appeal No. 36 of 1941 and Award No. 54 of 1941
Judge
Reported inAIR1942Bom236; (1942)44BOMLR485
AppellantPatel Bros.
RespondentShree Meenakshi Mills, Limited
Excerpt:
.....appellate, award valid-whether original award invalid, if appellate award found invalid-east india cotton association rules, rule 38e-contract-clause giving jurisdiction to hear suits regarding) disputes under contract-clause does not bar arbitration under contract.;when once a board has been constituted to hear an appeal in arbitration proceedings and when such board has taken cognizance of the appeal and commenced to hear it, the parties are entitled to the united judgment of the board, and it is not open to any member of the board to withdraw and for the remaining members to continue the hearing of the appeal, unless the parties agree to that course being adopted. in the absence of such consent, a fresh board must be constituted to hear the appeal.;fazalally v. khimji (1933) 36 bom...........of the bombay market, and those rules are admittedly the rules and by-laws of the east india 'cotton association, ltd. the last clause in the contract provided that no suit in regard to any matter arising out of the transactions in bombay, liverpool or new york cotton markets should be instituted in any court save the high court of judicature or the court of small causes at bombay. disputes arose between the parties, and the brokers claimed margin, and not getting margin they closed the contracts, and claimed a sum by way of damages, and under the rules and by-laws of the east india cotton association the dispute had to be referred to arbitration.3. it is argued that the last clause, to which i have referred, is itself an arbitration clause, and ousts the provision requiring.....
Judgment:

Beaumont, C.J.

1. This is an appeal against an order of Mr. Justice Chagla, and the dispute arises in this way.

2. There was an agreement between the Shree Meenakshi Mills, Ltd., and Messrs. Patel Bros., under which the mill company employed Messrs. Patel Bros, as brokers to carry out various transactions in the markets of Bombay, Liverpool and New York, and it was provided that the business should be subject to the rules, regulations and by-laws for the time being in force in the market in which the business was required to be transacted ; so that the business in Bombay was subject to the rules and regulations of the Bombay market, and those rules are admittedly the rules and by-laws of the East India 'Cotton Association, Ltd. The last clause in the contract provided that no suit in regard to any matter arising out of the transactions in Bombay, Liverpool or New York cotton markets should be instituted in any Court save the High Court of Judicature or the Court of Small Causes at Bombay. Disputes arose between the parties, and the brokers claimed margin, and not getting margin they closed the contracts, and claimed a sum by way of damages, and under the rules and by-laws of the East India Cotton Association the dispute had to be referred to arbitration.

3. It is argued that the last clause, to which I have referred, is itself an arbitration clause, and ousts the provision requiring arbitration under the bylaws of the East India Cotton Association. But I am clearly of opinion that that clause has no operation, at any rate so far as Bombay is concerned, unless a suit is filed, in which case the Court is defined ; but, in my opinion, that clause does not affect reference of disputes to arbitration.

4. Under the by-laws of the East India Cotton Association, in the event of a dispute arising, a reference has to be made to two arbitrators, one to be appointed by each side, and on failure of one side to appoint an arbitrator in due time, the chairman of the association is to make the appointment, and that happened here. Messrs. Patel Bros, appointed an arbitrator, but the other side failed, to appoint an arbitrator, and the. chairman appointed arbitrators. The arbitrators met, and made an award of a sum of Rs. 34,000 odd in favour of Patel Bros. Clause 38-E of the by-laws of the East India Cotton Association provides that the award of any two arbitrators shall be final and binding on both parties, subject to a right of appeal to the board within ten days from the date of publication of the award. Notice of appeal was given in this case within due time by the constituents, and the matter came before the board of the East India Cotton Association under the clause which I have just read.

5. Now, 'board' is denned in the by-laws of the East India Cotton Association as meaning the board of directors of the East India Cotton Association, Ltd., acting through at least a quorum of their number at a meeting of that board duly called and constituted. Under the articles of association of the board, there must be not more than twenty, and not less than twelve, directors, six directors constitute a quorum, and a quorum can exercise any of the powers of the board. No doubt, the articles do not directly bind the parties to this arbitration, but I think they are inferentially . bound thereby, because they had agreed to refer matters to a board of directors, and they must have known that the constitution of the board and its powers and procedure would be regulated by the articles.

6. A meeting of the board of directors was duly constituted, and nine directors attended the meeting, and the hearing of the appeal against the arbitrators' award commenced. But after the appellants had proceeded some way in their opening, one of the directors, Mr. Kay, left the room, and took no further part in the proceedings. Mr. Munshi, who was arguing the case for the appellants, has stated to us that he did not in fact notice that a director had left the room, and, therefore, did not raise any protest, and the matter proceeded before the remaining eight directors. On that statement, which we accept, there can be no question of waiver of any right to have the nine directors present. In due course the eight directors made an award reducing the sum allowed by the arbitrators from Rs. 34,000 odd to Rs. 12,508-6-5.

7. The mill company then presented this petition to the Court asking for the decision of the board of appeal and the award made by the arbitrators to be set aside. The learned Judge decided that the hearing before the appellate board was vitiated by the withdrawal of one of the directors after they had commenced the hearing of the appeal.

8. Mr. Bhagwati for the appellants has strenuously contended that that decision is wrong, and that all that was required was that the appeal should come before a board of the East India Cotton Association, which, under the terms of the by-laws, can act through a quorum. He argues, therefore, that any board comprising at least six members is competent to hear an appeal. He admits that difficulties might arise, for instance, if the six directors, who started hearing the appeal, retired after the arguments were concluded, and were succeeded by six other directors who had not heard the arguments, but nevertheless gave a decision ; but he says that difficulties of that sort could be met by the Court insisting that the principles of natural justice should be observed. He points out that in this case there were originally nine directors hearing the appeal, whereas only six were necessary, and that when one withdrew, the remaining eight were competent to hear the appeal, and that two more might have withdrawn without affecting the competence of the tribunal. It is, no doubt, true that any board of six or more directors is a competent tribunal; but, in my judgment, the true principle is this. When once a board has been constituted to hear an appeal, when, to use an expression with which we are familiar in this Court, a board has taken cognizance of the appeal, and has commenced to hear it, then that board constitutes the appellate tribunal, and it is not open to any member to withdraw, and for the remaining members to continue the appeal, unless, of course, the parties agree to that course; being adopted; but as in this easel the attention of the parties was not drawn to the withdrawal of one of the members, they cannot be said to have consented. In the absence of consent, I think, the true rule is that the tribunal, which has commenced the appeal, must continue, and if any member is obliged to withdraw, and the parties are not willing to go on before the remaining members, then a fresh board must be constituted. That was the conclusion at which Mr. Justice Chagla arrived, relying to a considerable extent on a decision of Mr. Justice Rangnekar in Fazalally v. Khimji (1933) 36 Bom. L.R. 1005. No doubt, the facts of that case, which was also dealing with an appeal to the board of directors of the East India Cotton Association, were a good deal stronger than the facts in the present case, because in that case there had been three meetings of the board of directors, and different directors had been present on each occasion, although admittedly six particular individuals had been present on all three occasions. I think that the learned Judge might have held that the principles of natural justice had been infringed, but he seems to me rather to have relied upon the principle, which I think is the right principle, that when once a tribunal was constituted, it could not be altered, and the mere fact that six particular directors had been present at every hearing did not regularize the proceedings. The parties are entitled to the united judgment of the appellate board, and it is no answer to the objection to the withdrawal of one member that his presence would probably have made no difference. We cannot say what persuasive influence he might have exercised upon his colleagues. In my judgment, therefore, the decision of Mr. Justice Chagla was right that the appellate board was not properly constituted, and could not give a decision after the withdrawal of one of its members. The question then arises what order ought we to make. The order which the learned Judge made was to set aside, not only the decision of the board of directors in appeal, but the original award made by the arbitrators. Now, this Court has no jurisdiction to interfere with the original award of the arbitrators, taken by itself, there being no case of misconduct made against them. Sir Jamshedji Kanga; on behalf of the respondents has, however, argued with his accustomed vigour that we have no power to set aside anything but the whole award. His contention is that there is only one award, the award made by the arbitrators plus the modification of that award made by the directors, and that all we can do is to set aside the whole thing, and we cannot set aside the decision of the directors, leaving the original award standing. But I think, with all respect to him, that his argument involves some confusion, and lands him on the horns of a dilemma. The only ground on which the decision of the directors is challenged is that they were not a body, competent to hear the appeal after one of their number withdrew and, therefore, their decision was a nullity. If the decision was a nullity it cannot have affected the award of the arbitrators in any way. If it was not a nullity, there is no objection to it, and the appeal must succeed. It may be a question what the exact position of the board of directors acting under by-law 38-E is. If they are to be regarded as a sort of informal Court of Appeal, then I apprehend that this Court could direct them by way of mandamus to carry out their duty and hear an appeal, which has been preferred, and which up to now they have not heard in a legal mariner. On the other hand, if, as I think is probably the more correct view, the hearing of the so-called appeal before the board is not really an appeal, but is a continuation of the arbitration, that is to say, if the arbitration consists of the original hearing before the arbitrators plus a further hearing before the board of directors in case either party is dissatisfied with the award of the arbitrators, then it comes to this that the award has to be made on two different dates, and in two different parts, by two different sets of arbitrators The position in the present case then is that we have got one part of the award validly made, but the other part of the award has up to now not been made. If that is so, I think we can remit that portion of the award under Section 16 of the Indian Arbitration Act; and, in my view, that is really the only course which is open to this Court. We cannot interfere with the original award of the arbitrators by itself, because the arbitrators are not shown to have been guilty of any misconduct which entitles us to interfere. We cannot say that their award has been modified by the board of directors, because that admits that the decision of the board of directors was to some extent a competent decision and we have held it to be a nullity. We have not to consider what the position would be if a board of the directors validly constituted was guilty of misconduct. The order which we make by way of modification of the learned Judge's order is to declare that the appeal against the award dated March 19, 1941, of which the present respondents gave notice under Clause 38E of the by-laws of the East India Cotton Association, Ltd., has never been heard by a properly constituted board of directors of the East India Cotton Association, Ltd., set aside the purported order of the board of June 21, 1941, and refer the notice of appeal back to the board of directors to be dealt with according to law.

9. The order of costs in the lower Court to stand. No order as to costs of the appeal.

10. Both awards to be taken off the file.

Somjee, J.

11. I agree and have nothing to add.


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