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Keshavsingh Dwarkadas Vs. Indian Engineering Co. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtMumbai High Court
Decided On
Case NumberArbitration Petn. No. 49 of 1968
Judge
Reported inAIR1969Bom227; (1969)71BOMLR312; 1969MhLJ458
ActsArbitration Act, 1940 - Sections 3 and 8 (1) - Schedule - Rule 4
AppellantKeshavsingh Dwarkadas
RespondentIndian Engineering Co.
Appellant AdvocateM.H. Shah and ;A.N. Mody, Advs.
Respondent AdvocateA.H. Mehta and ;M.B. Rele, Advs.
Excerpt:
.....8(1)(b), 3 - whether acceptance of appointment as arbitrator or umpire necessary for its validity--arbitration agreement providing for reference to umpire only on disagreement between arbitrators whether excludes reference to mm if time fixed for award allowed to expire--whether an inference of disagreement between arbitrators can be drawn where they allow time for making award to expire--'neglects', connotation of in section 8(1)(b).;under the arbitration act, 1940, to constitute a valid appointment of either an arbitrator or of an umpire it is not necessary that there should be acceptance of the appointment by him.;mirza sadik husain v. musammat kaniz zohra begam (1911) 13 bom. l.r. 826, p.c., followed.;where an arbitration agreement provides for a reference to an umpire only in the..........510 of the code of civil procedure 1882, which dealt with the same situation as section 8 of the present arbitration act 1940 and also used the expression 'refuses or neglects' in regard to the same. it was stated that courts in india had construed the said section as meaning that it could only apply to an arbitrator who refused, after having accepted office before refusing. it was observed in the judgment of the privy council that what had actually happened in the said case was that, after the arbitrator had been appointed, he refused to accept office as such, or to act. the privy council took the view that the construction that had been placed upon section 510 by the courts in india till then was not a proper construction of that section, and that 'when an arbitrator is nominated by.....
Judgment:
ORDER

1. This is a petition under Section 33 of the Indian Arbitration Act, 1940, for the determination of the existence and/or validity of the Arbitration Agreement and/or the effect of the purported Reference to Arbitration between the parties, and for a declaration that there is no valid or proper agreement to refer and the decision of the purported appointment of the Umpires is inoperative, ineffective and void and the Umpire has no right to decide or proceed to decide the disputes between the parties arose out of certain selling agency agreements in respect of aluminum and copper wires manufactured by the petitioner. Disputes arose between the parties and claims for damages were made which disputes and claims were, under an Arbitration Agreement dated 26th April 1967 (a copy of which is annexed to the petition and marked 'A'), referred to the Arbitration of two learned Counsel of this Court, Mr. H. G. Advani and Mr. J. M. Gandhi, with summary powers. Clause 2 of that Arbitration Agreement provided that the Arbitration proceedings were to be governed by the provisions of the Arbitration Act 1940, and clause 5 laid down that the Arbitrators had to make and publish their Award within four months from the date of their entering upon the reference. Clause 6 which is very material for the purpose of the present petition must be quoted. It is in the following terms:-

'6. The said Arbitrators shall before proceeding with the Arbitration appoint an Umpire and in the event of any difference arising between them, they shall refer the matter to the Umpire for his decision and Award.'

The Arbitrators held their first meeting on the 12th September 1967 at which they made the appointment of an Umpire in the following terms:-

'Mr. Porus Mehta failing him Mr. Murzban Mistry appointed Umpire.' Some meetings were thereafter held and the pleadings completed in the proceedings before the Arbitrators. It is common ground that on the 11th of January, 1968 the time laid down by Clause 5 of the Arbitration Agreement between the parties expired. On the 14th February 1968, the respondents wrote a letter to the petitioner to the effect that the necessary extension of time should be obtained, but there was no reply by the petitioner to that letter. On 27th May 1968 the Umpire Mr. Mehta held a meeting before him which, however, was adjourned to the 17th June 1968 on which date he gave certain directions in regard to the proceedings before him. Preliminary objections to his right to decide or proceed to decide the said matter having been raised before him were rejected by him at the meeting held on the 12th and 13th of July 1968. The meeting fixed for the 20th of July 1968 was, however, adjourned as the Umpire was informed that the petitioner, proposed to file the present petition, which he did on the 29th July 1968 for the reliefs already set out by me above. The Petitioner claimed those reliefs on the grounds set out in paragraph 7 of the petition, but it may be stated that grounds (b) and (c) therein were not argued before me at all and must be treated as given up. The argument before me was based upon on the grounds mentioned as (a) and (d) in the said paragraph 7 of the petition, and they are as follows:-

(i) That the consent of the Umpire not having been obtained to his appointment as such before proceeding with the Arbitration, there was in effect no appointment of the Umpire at all (ground (a) of para 7);

(ii) that Clause 6 of the Arbitration Agreement excludes the operation of Paragraph 4 of Schedule 1 of the Arbitration Act by reason of the provisions of Section 3 of that Act, and the Umpire could, therefore, enter upon the reference only in the event of a difference arising between the arbitrators viz. on their disagreement. It is contended that no difference having arisen between the arbitrators in the present case when the time for making the Award expired, the Umpire had no right, to enter upon the Reference (ground (d) of Paragraph 7 of the petition); and

(iii) that under Clause 6 of the Arbitration Agreement the Umpire had no right to enter on the Reference unless the arbitrators referred the matter to the Umpire (also ground (d) of Paragraph 7 of the petition).

2. As far as the first ground mentioned above is concerned, Mr. Shah has contended that Section 8(1)(b) of the Arbitration Act, which provides the mode of filling a vacancy in the appointment of arbitrators or umpire, comes into play only if the arbitrator or umpire refuses to act after having accepted the appointment, but that if there is no acceptance by the arbitrator or the umpire as such, then there is nor appointment at all and no question of resorting to the procedure under Section 8(1)(b) of the said act arises at all. I see no reason whatsoever to restrict the full import of the word 'refuses' in the manner suggested by Mr. Shah. Mr. Shah's contention that there is no appointment unless there is acceptance of the appointment is not founded on anything contained in the Arbitration Act itself. That Act does not anywhere lay down that requirements as being necessary to constitute a valid appointment, either of an arbitrator or of an umpire. Mr. Shah's contention in that behalf is founded only on what, he submits, should be read into the connotation of the word 'appoint'. As far as that is concerned, it may, however, be mentioned that the plain meaning of the word 'appoint', in the sense in which it is being considered for the purpose of the present case, is , 'to ordain or nominate to an office' (Murray's Oxford English Dictionary 1961). There is, therefore, no reason to import the idea of consent into the plain meaning of the word 'appoint'. It is not unusual to find a man refusing an appointment to a post or office which has already been made in his favour. Mr. Shah has placed reliance on a decision of the Allahabad High Court in the case of Fayazuddin v. Aminuddin (1909) 1 I c 354 and on the statement that is to be found in Russel on Arbitration (17th edn.) pp. 160 and 214--215. It is stated in Russel that acceptance of the office by an arbitrator appears to be necessary to perfect his appointment, and the decision in the old English case of Ringland v. Lowndes (1863) 15 CB 173 is cited in support of that proposition. The same position is stated in Russel in regard to an umpire also, in support of which another English case is cited therein. I am, however, beyond by the view expressed by the Privy Council in another case, which happily coincides with the view which I have taken, apart from authority, on this point, and that is the case of Mirza Sadik Hussain v. Musammat Kaniz Zohra Begum (1889) 13 Bom LR 826 . The facts of that case were that one Mizra Hasan Khan died leaving him surviving, as heirs, his widow the 1st respondent, his daughter the 2nd respondent and his son the appellant. Disputes having arisen between the appellant and the two respondents as to their shares, the respondents filed a suit in the Court of the Subordinate Judge in Lucknow claiming administration of the estate of the deceased, but after the written statement was filed in that suit, the parties arrived at a compromise which provided inter alia for a reference to the arbitrators named therein. One of those arbitrator, however, refused to accept office as such, or to act. The District Judge made order of reference to arbitration, whereupon the respondents applied to the court to withdraw the order of reference and to deal with the matter itself or to appoint a commissioner for the purpose. The appellant objected to that course and insisted that the respondents should nominate a new arbitrator. The respondent having declined to appoint another arbitrator the District Judge made an order that he would scrutinise the matter himself and, on his having done so he passed an Order allotting certain properties to the respondents. On appeal from that order to the Court of the Judicial Commissioner of Oudh, the decision of the District Judge was affirmed. The appellant thereupon appealed to the Privy Council. Reference was made in the judgment of the Privy Council to Section 510 of the Code of Civil Procedure 1882, which dealt with the same situation as Section 8 of the present Arbitration Act 1940 and also used the expression 'refuses or neglects' in regard to the same. It was stated that courts in India had construed the said section as meaning that it could only apply to an arbitrator who refused, after having accepted office before refusing. It was observed in the judgment of the Privy Council that what had actually happened in the said case was that, after the arbitrator had been appointed, he refused to accept office as such, or to act. The Privy Council took the view that the construction that had been placed upon Section 510 by the courts in India till then was not a proper construction of that Section, and that

'when an arbitrator is nominated by parties, his refusal to act is signified as clearly by his refusal to accept nomination as by any other course he could pursue. His refusal to act necessarily follows, for he had performed the first action of all, viz. to take up the office by signifying his assent to his appointment.'

The Privy Council, therefore, adopted the view that the course adopted by the lower court was erroneous and the appeal was, therefore, allowed. It is clear from the decision of the Privy Council in the case which I am now considering, that this very question arose before them, though in another context, and that the Privy Council has taken the view that there is no distinction between 'refusal to act' and 'refusal to accept' his nomination for the purpose of Section 8 of the Arbitration Act. In fact, the observations of the Privy Council clearly show that the view taken in that judgment was that there was appointment, and that the subsequent refusal of the arbitrator to accept office was nothing else but a refusal to act after having been nominated and it is only on that basis that the Privy Council held that Section 510 of the Code of Civil Procedure, 1882 was applicable. I respectfully agree with the view taken by the Privy Council in the said case and I, therefore, hold that there has been a valid and proper appointment of Mr. Mehta as Umpire in the present case, notwithstanding the fact that his consent had not been obtained prior to his appointment as such.

3. The next ground on which the present petition has been supported by Mr. Shah raises an interesting question. Section 3 of the Arbitration Act, 1940, enacts that arbitration agreements must be deemed to include the provisions set out in the First Schedule to the said Act, 'unless a different intention is expressed therein'. Para 4 of the said Schedule provides that the umpire is to enter on the reference in lieu of the arbitrators in two contingencies: (a) if the arbitration have allowed their time to expire without making an award; or (b) have delivered to any party to the arbitration agreement or to the umpire a notice in writing stating that they cannot agree. Clause 6 of the Arbitration Agreement dated 26th April 1967, however, provides for a reference to the umpire only in the event of the latter of those contingencies. The former contingency is not mentioned in it at all. It is the contention of Mr. Shah for the Petitioner that the said clause therefore evinces a clear intention to exclude the operation of para 4 of the First Schedule to the Arbitration Act and the result is that there can be no reference to the umpire in the present case, if the time fixed for making the award has been allowed to expire, but the arbitrators have not actually disagreed. In short, according to Mr. Shah the operation of para 4 of the First Schedule is excluded by the terms of clause 6 of the Arbitration Agreement in the present case, in view of the provisions of Section 3 of that Act. I am afraid I cannot accept that contention of Mr. Shah. Merely because one contingency is mentioned in clause 6 of the Arbitration Agreement it cannot be said that 'a different intention is expressed in that clause is inconsistent with or repugnant to para 4 of the First Schedule to the said Act. In my opinion, that cannot be said to be the position here. What has happened is that, in clause 6, whilst providing for the appointment of the umpire, the parties have referred to the most obvious thing viz. a difference arising between the arbitrators, but it cannot be said, in doing so, their express intention was to exclude the other contingency which is provided for in para 4 of the First Schedule of the said Act. I, therefore, hold that clause 6 does not exclude the operation of para 4 of the First Schedule to the Act.

4. If I am wrong in the view which I have taken above on this point, I would not accept the argument of Mr. Mehta that the mere expiry of time fixed by clause 5 of the Arbitration agreement must be regarded as a disagreement between the arbitrators. Mr. Mehta has relied upon a statement to that effect which is to be found in Russel on Arbitration (17th Edn) p. 154. but if one looks at the cases that have been cited by Russel in support of that proposition on that page, and also to the cases cited on p. 156 as well as pages 220-221, it is clear that in each of those cases there was material to show that the arbitrators were in disagreement or, at any rate, that they were not inclined to agree, and it is on those facts and in those circumstances that an inference of disagreement was drawn in those cases. I cannot help feeling that the proposition which Russel has formulated on the strength of those decisions is too wide as, in my opinion, it is not in every case of arbitrators merely allowing time to expire that an inference of disagreement between the arbitrators can be drawn. If I am wrong in the view which I have taken that clause 6 of the Arbitration Agreement in the present case does not exclude the operation of para 4 of the First Schedule to the Act. I would, therefore, come to the conclusion that the umpire had no jurisdiction to enter upon the Reference and would hold that the proper procedure in this case is to have fresh arbitrators appointed under Section 8(1)(b) of the Act, as the failure of the arbitrators to make their award within the time fixed for it would, in my opinion, fall within the word 'neglects' in clause (b) of sub-section (1) of that section. Mr. Shah has sought to contend that there may be cases where the arbitrators may use the utmost diligence in proceeding with the Reference and there may be no element of neglect at all and yet they may fail to make the award within the time fixed. It is , however, important, in this connection to bear in mind that the word used in Section 8(1)(b) of the Arbitration Act, 1940 is , not 'negligence', but 'neglect' and the word 'neglect' must take its colour from the context in which it is used. If the expression used were 'fails or neglects.' the word 'neglects' in that context might convey the idea of negligence as the antithesis would then be between mere failure and negligence. Where, however as in the present case, the expression used is 'neglects or refuses' the antithesis between the two terms would show that the word 'neglects' is meant to cover all cases other than those of positive refusal, and is not confined to cases of negligence alone. If the arbitrators in such a case fail to make the award within the time fixed, it can, as a matter plain language, be said that they have neglected to do what they had undertaken viz. to make the award within the time fixed, and the provisions of Section 8(1)(b) of the Arbitration Act, would, in that event, apply.

5. As far as the third ground urged by Mr. Shah is concerned, there is no substance in the same. Clause 6 of the Arbitration Agreement in the present case provides for the Umpire entering upon the Reference on the matter being referred to him by the arbitrators because the said clause deals only with the contingency of a disagreement between the arbitrators. That requirement cannot possibly have any application to a case like the present one in which the arbitrators have allowed the time fixed to expire without making the award. I must, therefore, reject this contention of Mr. Shah also.

6. The result is that, if I had taken the view that clause 6 of the Arbitration Agreement does exclude para 4 of the First Schedule of the Act. I would have held that the Umpire had no jurisdiction to proceed with the Reference and that the proper remedy was to proceed by way of an application under Section 8(1)(b) of the Arbitration Act. In the view which I have taken, however, by virtue of the provisions of para 4 of the First Schedule to the Arbitration Act, the Umpire had rightly entered upon the Reference, and I so determine under prayer (a) of the petition, and decline to grant the relief sought in prayer (b) of the petition. The petitioner having failed, must pay the respondents' costs of this petition.

7. In view of the agreement between the parties which is recorded by the Umpire at the meeting held before him on the 20th of July 1968, by consent of parties, I order that the time for the Umpire to make his award be extended to 31st December 1968. The parties before me are agreed that this will be without prejudice to the respondents' right to file an appeal, or any other proceeding from this order, if so advised, and that the Umpire will not proceed with the Reference for a period of two weeks from to-day for the purpose of enabling the respondents to consider their position in regard to the same. In the event of an appeal being filed, the directions of the appellants court will have to be obtained in the matter.

8. Order accordingly.


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