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Jolly Steel Industries Pvt. Ltd., Poona Vs. Union of India and anr. - Court Judgment

LegalCrystal Citation
CourtMumbai High Court
Decided On
Case NumberA.F.O.D. Nos. 744 and 745 of 1973
Reported inAIR1979Bom214
ActsArbitration Act, 1940 - Sections 3, 11, 14 and 33 - Schedule - Rule 3; Sale of Goods Act - Sections 58; ;Specific Relief Act - Sections 10 and 14
AppellantJolly Steel Industries Pvt. Ltd., Poona
RespondentUnion of India and anr.
Appellant AdvocateP.S. Warke and ;C.M. Mehta, Advs., i/b., Gagrat & Co.
Respondent AdvocateR.S. Bhonsale, Govt. Pleader
DispositionAppeal allowed
a) the case dealt with the meaning of the expression 'entering on the reference' under the arbitration act, 1940;b) the court ruled that the error in the award was not such, as could be corrected by it under section 14 or 33 of the arbitration act, 1940 and it also ruled that movables in question was not available freely in the open market, therefore the case would come under section 58 of the sale of goods act and section 10 of the specific relief act, 1940 - - it is however not easy to decide when precisely he assumes office or starts functioning effectively or when he is called upon to apply his mind to the dispute. both these grounds are well founded and the contention of mr......there was some preliminary hearing on that date and there was some application of the mind. as the award dated 20-11-54 was beyond four months, any further question of considering the second part of the ratio in lossifoglu's case did not arise and the ld. judge expressly declined to decide it. in other words, dr. babubhai's case is wrongly assumed by the trial judge, in this case, to have held that date of issuing notices happens to be such date of entering on reference within the meaning of clause (3) of schedule i. following passage from justice tendolkar's judgment in that case militates against the assumption made by the trial judge (at p. 147):--'it is perhaps possible to argue that the decision in 'iossifoglu v. coumantaros' 1941 1 kb 396 has gone a bit too far in holding that the.....

Deshpande, J.

1. The Controller of stores, Central Railway, Bombay had to dispose of scrap steel rails lying at various stations in Bombay and Solapur Divisions in the then Central Railway. Tenders were invited and the tender of the appellant M/s Jolly Steel Industries Pvt. Ltd. was accepted ultimately on 23-7-1966. A certain dispute is to delivery of the goods arose between them and the same was referred in accordance with the agreement to a high ranking Railway Officer as a sole arbitrator on 12-11-1971. He delivered his award on 15-5-1972- The Respondent is directed thereunder to deliver 1567 (MT) of the scrap in terms of the contract and refund of Rs. 4187 to the appellant.

2. The appellant thereafter filed Spl. Suit No. 252 of 1975 against the Respondent, the owner of Railways on 21-8-1972 before Civil Judge, Sr. Divn; Poona claiming a decree in terms of the award under Section 14 of the Arbitration Act, The Respondent also filed Misc. Application No. 632 of 1972 for setting aside the said award. The award is claimed to be (1) void, having been made, long after the expiry, of four months from the date of 'entering on reference' and also (2) in breach of Section 14 of the Specific Relief Act in directing specific performance of the contract of delivering the steel rail scrap.

3. The Special Civil Suit and Misc. Application were tried together by the learned Judge. He accepted the conten-tion of the Respondent that the award was a nullity on the ground so alleged. According to the learned Judge the Arbitrator must be deemed to have entered on reference on the date of issuing notices on 17-11-1971 and award on 15-5-1972 was on the face of it beyond four months therefrom. He relied on Babubhai Vanmalidas Mehta v. Prabhod Pranshankar Joshi, : AIR1956Bom146 in support of this view. The contention as to the breach of Section 14 of the Specific Relief Act was overruled saying that goods agreed to be sold were of a peculiar nature not available in any open market. In the result, the suit of the appellant came to be dismissed while Misc. Application of the Railway Administration came to be allowed. The appellant has preferred these two appeals against the said common judgment dated 28-6-1973.

4. Mr. Warke. the learned Advocate appearing for the appellant contends that, mere issuance of notices and calling the parties to submit their statement does not involve any adjudicative or judicial process and therefore, cannot amount to entering on reference. According to him, this process of entering on reference involves some application of mind to the dispute in question as (1) to the merit thereof or to the procedure by the Arbitrator. Mere ministerial act of issuing notice on appointment cannot be equated with entering on reference. No occasion for such application of mind having arisen till the date of hearing on 21-2-1972, so contends Mr. Warke, the arbitrator cannot be said to have entered on the reference. We find much substance in this contention.

5. Undisputed facts are that the arbitrator was appointed on 12-11-1971. He issued notices to the parties on 17-11-1971. The appellant submitted its statement of case on 25-11-1971 while the Respondent submitted their statement of case on 25-1-1972. On 31-1-1972 the arbitrator issued notices calling upon the parties to appear before him on 7-2-1972 to enable him to hear and dispose of the dispute. Admittedly no hearing as such could take place on 7-2-1972. Hearing was then adjourned to 21-2-1972. Witnesses were examined on that day. The arbitrator then delivered his award on 15-5-1972 and communicated it to the parties by his letterdated 16-5-1972. A few days later on 21-8-1972 the appellant filed the Special Civil Suit in the Court for making the award a decree of the Court. Thus the arbitrator had mo occasion in this case to apply his mind to any dispute touching the merits of the case or procedural aspect thereof till 21-2-1972.

6. Under Section 3 of the Arbitration Act, the first Schedule is assumed to be a part of the arbitration agreement, unless different intention is indicated therein. It is common ground that the agreement in dispute did not indicate any contrary intention. Clause 3 of Schedule I does require the arbitrator to make an award within four months (1) of entering on reference or (2) of being called upon to act by any party to such dispute or within such extended time as the court may allow. The arbitrator becomes functus officio thereafter and any award made thereafter would be void ab initio. Admittedly the time, of this four months, was not extended by the court in the present case. This is how ascertaining of the precise date of arbitrator's entry on the reference assumes importance in this case.

7. The wording 'entered on reference' is somewhat ambiguous. It can mean the process of (1) accepting the office or (2) of doing some act as such arbitrator including issuing of notice to the parties or (3) of applying mind to any controversy or (4) of hearing the evidence itself. It is however not easy to decide when precisely he assumes office or starts functioning effectively or when he is called upon to apply his mind to the dispute. Under the corresponding provision of the English enactments after which our Arbitration Act is modelled, the decision of Cockburn, C. J. in the case of Baker v. Stephens. (1867) 2 QB 523, was considered to be the leading authority on the construction of this wording. According to the learned Chief Justice, the arbitrator enters on reference not, when he accepts or assumes office, or when he issues notices to the parties to appear and file statement of their claims, but when he has occasion to hear all the parties to the dispute about the merits excepting those against whom proceedings are set ex parte. This view exclude all earlier stages even when thearbitrator decides some controversy on application of his mind. The dictum of this case was followed by all Indian High Courts till the Appeal Court in England had occasion to strike a discordant note in the case of Iossifoglu v. Coumantaros, (1941) I KB 396. According to the ratio of this case, arbitrators enter on reference even when they accept the office and communicate with each other about the choice of the umpire. This case is now followed by all the High Courts including our High Court in Dr. Babubhai's case : AIR1956Bom146 (supra). In this case, Tendolkar, J. preferred to follow the ratio of lossifoglu's case (supra) as against the ratio of Baker v. Stephens case (supra) as in his opinion the Baker's case was impliedly overruled by Iossifoglu's case though not expressly referred to.

8. The learned trial Judge appears to us to have misconstrued the true ratio of Dr. Babubhai's case. The judgment in Iossifoglu's case is very short. One has still to find out the true ratio of his case as the same is now followed by various High Courts in India in preference to Baker's case. In this case the two arbitrators had done nothing beyond agreeing to be arbitrators and discussing in between them as to who should be the umpire. In an application to the Court for appointment of an umpire, the question arose if the arbitrators had entered on reference at all to warrant appointing an umpire. The contention was that stage of hearing not having been reached, there was no entering on reference by the arbitrators. The case firstly holds that entering on reference by the arbitrators is not suspended till the occasion to hear the parties as to the merits of the dispute arises. All the High Courts are unanimous in accepting this part of the ratio and Dr. Babubhai's case accepts this legal position unhesitatingly. The case secondly holds that entering on reference takes place immediately on the assumption of office by the arbitrators and communication between them as to the choice of the umpire. This part of the ratio does not appear to have been accepted in toto by any of our High Courts. Dr. Babubhai's case also does not follow this part of the ratio. Ten-dolkar, J. assumed the arbitrators, in that case, to have entered on reference not on the date of assumption of officeon 14-12-53 or when statements were submitted by the parties on 5-1-54, or when one arbitrator abandoned the work and the other became the sole arbitrator in terms of the agreement dt. 28-3-54, but when the arbitrators gave some direction about procedural matter. The learned Judge assumed that there was some preliminary hearing on that date and there was some application of the mind. As the award dated 20-11-54 was beyond four months, any further question of considering the second part of the ratio in lossifoglu's case did not arise and the Ld. Judge expressly declined to decide it. In other words, Dr. Babubhai's case is wrongly assumed by the trial Judge, in this case, to have held that date of issuing notices happens to be such date of entering on reference within the meaning of clause (3) of Schedule I. Following passage from Justice Tendolkar's judgment in that case militates against the assumption made by the trial Judge (at p. 147):--

'It is perhaps possible to argue that the decision in 'Iossifoglu v. Coumantaros' 1941 1 KB 396 has gone a bit too far in holding that the moment the arbitrator accepts an appointment he enters upon a reference. Perhaps the arbitrator must do some act which is referable to his position as an arbitrator and to nothing else before it can be said that he entered upon the reference; and indeed in any event, so far as Cockburn, C. J. was concerned in 'Baker v. Stephens,' 1867 2 QB 523 he pointed out that the arbitrator must take upon himself and exercise the functions of an arbitrator.'

9. In fact, Iossifoglu's case 1941 I KB 396 is far from being specific, whether the date of assumption of office of arbitrator or date of communication between them signifies their entering on reference. The wide gap between the two such dates in a given case may make it difficult to apply the ratio of this case in which itself such gap was immaterial. Though Iossifoglu's case is followed now by various Indian High Courts, no case decided by any one of them was brought to our notice, in which mere date of assumption of office or issuing of notice is held to be date of such entering on reference,

10. Mr. Bhonsle, the learned Govt. Pleader, appearing for Respondent, relied on Dr. Babubhai's case : AIR1956Bom146 (supra) and the case of Soneylal Thakur v. Lachhminarain Thakur, : AIR1957Pat395 and M. George v. Raju M. Mathew, : AIR1978Ker17 . We have already indicated how reliance on Dr. Babubhai's case is wholly misconceived. The Patna case also relied amongst others on Dr. Babubhai's case. The question of its application to facts and facts of each (sic) is very difficult. The words 'when he proceeds to do something in furtherance of and towards the execution of the work of arbitration' are too vague to admit precise connotation. These can cover even the act of issuing notices. But the learned Judges in that case (Patna) did not treat the act of even appearing of the parties before the arbitrator and the adjournments, as act of entering on reference. Fixing the date of hearing was considered by the learned Judges to be such an act. As observed by the learned Judges in para 5 of the judgment the true position in such a situation appears to be depending on facts and facts of each case. The words 'doing some act by the arbitrator in furtherance of and towards the execution of arbitration work' or 'taking some effective step' by themselves do not indicate any precise concept. The same is true of Kerala Judgment. In this case of M. George v. Raju M. Mathew, decided by the Supreme Court in : [1979]1SCR372 , the question as to when arbitrator enters on reference, had not arisen for consideration. Reliance thereon is not of any use.

11. Mr. Bhosle contends that time limit of 4 months prescribed under clause (3) of Schedule I would become dead letter if it is not computed from the date of the first act of the arbitrator. This contention is not without some substance and receives some support from a few observation in Dr. Babubhai's case. The fear however need not be inflated as, an aggrieved party is enabled under this clause to call upon the arbitrator to act and to move the Court under Section 11 either to compel him to act or his removal.

12. The Full Bench of the Calcutta High Court has had occasion to consider what 'entering on reference' by the arbitrator means in the case of Ramanath Agarwalla v. Goenka & Co. : AIR1973Cal253 . After considering Section 3 and the several clauses of the Schedule Iand Section II of the Act and different phrases employed by the legislation with regard to the stages before the arbitration, the learned Chief Justice speaking for the Court observed as follows : (para 29):

'Entering on reference, therefore, refers to the first step that the Arbitrator takes in the reference, that is to say, when he begins to deal with the reference. The Arbitrator, under the Act, may have to do various ministerial acts but the doing of any of the ministerial acts is not entering on the reference. It is only when he first applies his mind to the dispute referred to him that he enters on the reference. When, however, in a particular case, he first applied his mind to the dispute would depend in the facts and circumstances of that case.'

He then recorded his conclusion in para 35 of the judgment as follows:--

'We therefore, answer the questions referred to us as follows:

(1) An Arbitrator does not enter on the reference as soon as he assumes the office of an Arbitrator. An Arbitrator does not necessarily enter on the reference when he actually commences the decision of the matter in the presence of both parties or ex parte. An Arbitrator enters on a reference when he first applies his mind to the dispute or controversy before him depending on the facts and circumstances of each case.' With respect, we find ourselves in agreement with the above observation.

13. Thus, the arbitration proceeding consists of two stages. One such stage consists of merely ministerial acts while the second stage consists of effective adjudicative acts in furtherance of the work of arbitration, namely of proceedings to decide controversies in between the parties, whether arising out of the main dispute or procedural aspects in the disposal thereof. The arbitrator cannot be said to have entered on the reference unless the second stage can be said to have been reached someway or the other. Looked at from this point of view it is impossible to hold that the arbitrator had entered on reference in 17-11-1971 when nothing had happened on that date beyond the arbitrator issuing notices to the parties to file their statement of claims. The resume of events in this case indicates that no effective step was takenby the arbitrator, till the hearing of the dispute commenced on 21-2-1972. Each one of the earlier stages covered merely some or the other of the ministerial acts such as issuing of notices, acceptance of statement of claims and adjourning the case to suit the convenience of the parties. 21st February 1972 must be held, on the facts and in the circumstances of the case, to be the date on which the arbitrator had entered on reference. The award dated 15-5-1972 was within four months prescribed under clause 3 of Schedule I of the Arbitration Act. In this view of the matter, the finding recorded by the learned Judge on this point is liable to be set aside.

14. Mr. Bhosle then challenges the validity of the award virtually directing specific performance of the contract to sell the moveables. Now it is true that, no specific performance of contract is decreed by any civil court where, compensation in money can furnish adequate relief. This is what Section 14 of the Specific Relief Act lays down. Breach of contract to sell moveables can ordinarily be compensated in money terms. Ld. trial Judge however overruled this objection in two grounds. This, according to him, is not such an error of the Arbitrator which can be corrected by the civil court under Section 14 or Section 33 of the Arbitration Act. Secondly, the rail scrap not being available freely in the open market, case falls under the exception contemplated under Section 58 of Sale of Goods Act and Section 10 of the Specific Relief Act. Both these grounds are well founded and the contention of Mr. Bhosle is liable to be rejected.

15. Mr. Bhosle, however, contends that in the circumstances of this case, it is impossible for the railway department to comply with the decree as they are not possessed of required steel scrap stock. He, therefore, contends that at the most the arbitrator should have awarded a decree for compensation and not for the specific performance of the contract, particularly when lot of time has passed from the date on which the contract was to be enforced and the date when the award is being confirmed to-day. Now impossibility of performance of any contract is certainly a matter which any arbitrator has got to take into account. But such grievance cannot be entertained by us as it hasnot been raised not only before the trial Judge but also before the arbitrator himself. He then could have verified the truth of it. Mr. Bhosle could not read out any passage from the statement of their claim before the arbitrator in this behalf. He could draw our attention only to the averments in which reliance was placed by the respondent on the letter of appellant in which it had admitted as if the required quantity of goods was delivered. Suffice it to observe that this averment can by no stretch of imagination be considered to mean pleading of impossibility of performance of the contract as suggested. It is difficult to know from the material on record as to what was the answer of the appellant to this alleged admission. Even if the arbitrator is found to be in error in this behalf, the same by itself cannot justify interference by us. It is, therefore, difficult to assume that the contract under consideration was impossible of performance and therefore the award Is liable to be vitiated. The Court, in our opinion, thus was bound to pass a decree in terms of the award. Objections raised on behalf of the respondent in their Misc. application were liable to be rejected being untenable.

16. We accordingly allow both the appeals of the appellant and set aside the judgment of the trial Court. We decree Special Civil Suit No. 252 of 1973 filed by the appellant with costs and reject the claim of the respondent in Misc. application. No. 632 of 1972 with costs.

17. The appellant will also get costs of these appeals.

18. Appeals allowed.

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