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Phulchand Laxminarayan Vs. the India United Mills Ltd. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtMumbai High Court
Decided On
Case NumberAppeal No. 36 of 1959 and Award No. 28 of 1958
Judge
Reported inAIR1961Bom208; (1961)63BOMLR76; ILR1961Bom344
ActsBombay Mill Owners' Association Rules - Rules 16, 18, 25, 26 and 29; Arbitration Act, 1940 - Sections 16 and 16(1); Arbitration Act, 1899 - Sections 13
AppellantPhulchand Laxminarayan
RespondentThe India United Mills Ltd.
Appellant AdvocateM.R. Mody, Adv.
Respondent AdvocateM.J. Mistree and F.S. Nariman, Advs.
Excerpt:
arbitration - commercial arbitration -- applicability of principles of natural justice to such arbitration -- whether rules of millowners' association, bombay, exclude application of principles of natural justice -- arbitration act (x of 1940), section 16.;the principles of natural justice are not to be ruled out in every commercial arbitration, and for rendering those principles inapplicable, at least two things must coexist. one is an express exclusion of those principles by a specific rule or a specific term in the contract of the parties and the other, that the dispute referred to the arbitrators must be of such a kind as is capable of being decided by the arbitrators fairly and honestly without the due observance of the rules of natural justice. even in these limited cases where.....mudholkar, ag. c.j.1. this is an appeal from the judgment of mr. justice shelat refusing to set aside an award made by an umpire in certain arbitration proceedings. the facts relevant for the purpose of the appeal are as follows.2. the appellants entered into a contract with the respondents on the 30th of april, 1954 for the purchase of 825 bales of dhoties and sarees on terms and conditions contained therein. they paid for and took delivery of all the bales except 175 bales of dhoties. in regard to these bales there was a dispute between, the parties regarding quality. this dispute was referred to arbitration under the rules of the mill owner's association to which the contract was subject. the arbitrators after hearing the parties made an award cancelling the contract with respect to 72.....
Judgment:

Mudholkar, Ag. C.J.

1. This is an appeal from the judgment of Mr. Justice Shelat refusing to set aside an award made by an umpire in certain arbitration proceedings. The facts relevant for the purpose of the appeal are as follows.

2. The appellants entered into a contract with the respondents on the 30th of April, 1954 for the purchase of 825 bales of dhoties and sarees on terms and conditions contained therein. They paid for and took delivery of all the bales except 175 bales of dhoties. In regard to these bales there was a dispute between, the parties regarding quality. This dispute was referred to arbitration under the rules of the Mill Owner's Association to which the contract was subject. The arbitrators after hearing the parties made an award cancelling the contract with respect to 72 bales and directing the appellants to take delivery of the remaining 103 bales within 15 days of the receipt of the award by them. This award was made on the 5th October, 1955. The appellants, however did not take delivery of these bales even though called upon to do so by the respondents. Eventually, the respondents sold those bales by private treaty on the 9th of November 1955 and claimed as damages the difference between the contract rate and the price realised by them as a result of the re-sale. This amount worked out at Rs. 37.735-7-6. Since the appellants refused to pay the amount the respondents again invoked the arbitration clause to be found in the rules of the Mill Owners' Association and had the dispute referred to arbitration. The arbitrators, who were eventually appointed by the Mill Owners' Association, however, dismissed the respondents' claim whereupon they filed a petition in this court for setting aside the award. The award was set aside by this Court on the 20th of March 1956. The respondents thereafter again had the matter referred to arbitration under the rules of the Mill Owners' Association. They appointed one Mr. T. V. Baddeley as an arbitrator on their behalf while the appellants appointed one Mr. Gordhandas Vandravan as an arbitrator on their behalf, but they did so under protest.

3. The two arbitrators proceeded with the arbitration, but failed to agree, with the result that an umpire had to be appointed. One Mr. Pratap Bhogilal was appointed as the umpire by them. It may be mentioned that while both the arbitrators bad come to the conclusion that a breach of the contract was committed by the appellants Mr. Gordhandas Vandravan was of the opinion that the arbitrators had no jurisdiction to decide a question of law and that it was necessary for the parties to have recourse to a Court of Law for ascertaining the quantum of damages. Thus, the only question which the arbitrators had to decide was the quantum of damages to be awarded to the respondents.

4. Mr. Pratap Bhogilal convened a meeting of the parties on the 9th of January, 1958 on which date Vasudeo Lakminarayan, a partner of the appellants and one Marshall, a representative of the Respondents, were present. At that meeting, the umpire wanted certain information to enable him to come to his decision on the point of difference between the two arbitrators. The points on which he wanted information are referred to in the umpire's notes and we will reproduce those notes in the course of our judgment. The umpire could not make his award within 14 days from the date of reference to him and, therefore, the time for making the award was extended with the consent of the parties to the end of January, 1958.

5. In pursuance of the directions given by the umpire, the respondents by their letter of the 15th of January 1958 furnished him with information as regards the market price of the contract goods prevailing in October, 1955. By his letter dated the 22nd of January, 1958, Vasudeo Khaitan, a partner of the appellants, asked the Secretary of the Mill Owners' Association to give to the appellants a fortnight's time within which they could furnish the information which they were directed to furnish if they so desired. That letter was forwarded by the Secretary of the Association to the umpire. On that letter the umpire made the following endorsement :

'I have talked to the party on the phone and pointed out to him that at last hearing I had asked him whether he had anything to say about the price at which he had replied that he had nothing to say. I gave him time to inform us anything in the matter' within the next 8 or 10 days from the last date of our hearing because we had asked certain information from the Mills. Really I do not think the party has any relevant information. Any way I have no objection to giving time if the buyer and the seller agree to extension of the time for making the award.'

The time for making the award was thereupon further extended upto the 14th of February 1958. The Secretary of the Mill Owners' Association informed the appellants on the 31st of January 1958 that the umpire had extended the time for furnishing information upto the 10th of February 1958. He also intimated to them that if they failed to furnish the information the umpire would proceed to make his award on the basis of the material before him. By their letter dated the 10th of February 1958 the appellants gave their explanation with regard to the claim for damages made by the respondents stating inter alia that that claim was exaggerated, that the resale made by the respondents was bogus and In the alternative and, without prejudice to their contentions that the prevailing market rates at of about the time of the alleged resale varied from Rs. 6-3-0 to Rs. 7-2-0 per pair of dhoti in consequence thereof only a negligible amount would be found due and payable by them to the respondents as and by way of damages. On the 13th of February 1958 they further sent three price lists to the umpire in support of their explanation, The umpire after receiving these documents made .an endorsement on the lists to the effect that they did not apply to the contract goods and that therefore, he would not take any notice of them. It was thereafter that the umpire made his award for Rs. 30,914-10-6.

(5a) The main ground on which the award was challenged before the learned Single Judge was that the umpire in taking into account certain evidence furnished by the respondents without notice to and in the absence of the appellants had acted contrary to the principles of natural justice and that, therefore, the umpire had committed legal misconduct. It was further contended that the umpire failed to call a meeting after the first meeting of the 9th of January 1958 and that on this ground also the award was bad and liable to be set aside.

6. The learned Single Judge negatived the contentions raised by the appellants and held that the parties to the dispute had agreed before the umpire that the umpire was free to receive such material as the parties chose to adduce before him and decide the dispute on the basis of that material and of the material already placed on the record of the arbitrators and proceed to make an award without hearing the parties.

7. Mr. Mody, who appears for the appellants, contends that no plea was even raised by the respondents before the learned Single Judge that an agreement of the kind referred to by him in his judgment had at all been arrived at between the parties and further contends that such a plea does not even find place in the affidavit of Marshall filed in the proceedings before the learned Single Judge. We have perused the affidavit of Marshall and we-accept the contention of Mr. Mody that there is no categorical averment of an agreement of the kind found by the learned Judge in that affidavit. The reasoning upon which the conclusion of the learned Judge is based is, in his own words, as follows :

'Mr. Mistree on behalf of the respondents, how-ever, contends that the actual position on the 9th of January 1958 when the umpire held that meeting, was quite different from what has been stated on behalf of the petitioners. According to him the entire record of the proceedings including the statements made by the parties before the arbitrators were before the umpire and since the arbitrators had agreed that the petitioner had been guilty of a breach of the contract, the only question that remained to be determined by the umpire was the question as to damages and their quantum. He contended that it was agreed between the parties before the umpire that each of them should supply whatever information they had in their possession on the question as to damages and the prices prevailing at the time when the said re-sale took place. Mr. Mistree contended that it was in consequence of that agreement that the umpire gave the directions which are recorded in the notes of the meeting dated 9th January 1958. Mr. Mistree further contended that if such an agreement had not taken place, it wag obvious that Vasudeo Laxminarayan who appeared for the petitioners at that meeting, would have immediately told the umpire that he should call a further meeting at which the petitioners would be informed what materials the respondents had furnished to the umpire and if necessary to test those materials either by further evidence which the petitioners may adduce or by cross-examining the respondents on those materials. He urged that the notes, on the contrary, indicated that it was agreed between the parties that the umpire should be furnished by each of them such information that they had in their possession as regards the prices prevailing at the time of the resale and such other information as may be required by the umpire. Mr. Mistree also contended that the fact that the petitioner asked for further time to furnish the information which they had been given liberty to give and the fact that they ultimately supplied three price lists to the umpire indicated that they did so in pursuance of the agreement arrived at on the 9th of January 1958. But then the mere fact that the petitioners also furnished information to the umpire behind the back of the respondents would not make the slightest of difference if it were found that what was done by the umpire in regard to the letter dated 15th of January 1958 was in breach of the rules of natural justice. Unless therefore Mr. Mistree established that there was the agreement as is contended by him, the conduct on the part of the umpire in receiving the letter dated 15th of January 1958 would be such as would make the award liable to be set aside. Mr. Mistree, however, seems to be fortified in his contentions by the affidavits made by the parties.

In paragraph 7 of his affidavit in reply H. N. Marshall has set out the facts regarding the meeting of the 9th of January 1958 and has stated that as was agreed to at the said meeting the respondents by their letter dated 15th January 1958 furnished copies of certain documents containing the information required by the umpire. He has also staled there that all the information contained in this letter was at all times known to the petitioners, that the petitioners also supplied to the umpire certain formation regarding the rates and the said three price lists and that after considering alt the information received by him the umpire made his award dated 14th of February 1958. In. paragraph 8 of that affidavit Marshall has further stated as follows :

'As already stated it was agreed before the umpire Shree Pratap Bhogilal at the meeting held on 9th January 1958 that certain information was required by the umpire to be furnished to him by the respondents and certain information was required of the petitioners to be furnished to the umpire. Thereafter the petitioners themselves without any reference to the respondents directly communicated with Secretary, Mill Owners' Association and also appear to have communicated with the umpire on the telephone and submitted their letter dated 10th February 1958 and the Price Lists along with a covering letter dated 13th February 1958'.

It is quite clear from paragraphs 7 and 8 of this affidavit that the respondents' case, as set out therein, was that there was an agreement between the parties on the 9th of January 1958 that they should supply to the umpire the information asked for by him and that the umpire was therefore to make his award on the basis of that information without his having to call any meeting. In Other words the agreement arrived at between the parties and as set out in this affidavit was that after furnishing this information the umpire should by left alone to come to his conclusion as regards the question of damages and their quantum. Although the case as-placed before me by Mr. Noorani was that there was no such agreement, surprisingly enough that does not appear to be the case of the petitioners in their affidavit in rejoininder. If one turns to paragraph 6 of that affidavit, which is the reply to para 8 of Marshall's affidavit in reply, one finds significantly that there is no denial of the agreement pleaded by Marshall there. The only thing that is pleaded in para 6 of the affidavit in rejoinder is that the affidavit in reply showed admittedly that both the parties had supplied information to the umpire and that thereafter the umpire had made his award Straightway without calling a meeting of the parties or giving them an opportunity to lead evidence, 'that therefore the umpire had transgressed the principles of natural justice and the award was therefore liable to be set aside'. In paragraph 11 of the affidavit in rejoinder again the only tiling stated is that on the 9th January 1958 the umpire gave directions seeking thereby certain information but that it was the duty of the umpire to convene another meeting thereafter and the failure to convene such a meeting rendered the award liable to be set aside as the umpire did not give an opportunity to the petitioners to prove the rates. It is clear from' the affidavit in rejoinder of Vasudeo Laxminarayan that there is no denial express or otherwise, of the categorical allegations made in the respondents' affidavit in reply as to the agreement having been arrived at between the parties on the 9th of January 1958. It is obvious that if no such agreement had been arrived at, it is unthinkable that when there was an opportunity to the petitioners to deny such an agreement, they would fail to set out such a denial in their affidavit in rejoinder. As I have observed before, the only allegations made in the affidavit in rejoinder are as regards the alleged failure of the umpire to convene a further meeting and to give an opportunity to the petitioners to' test the information furnished by the respondents to the umpire. If an agreement had been arrived at as is the case of Mr. Mistree, it is obvious that three was not question of convening any further meeting as the parties had agreed to communicate to the umpire such information as they had with regard to the rates of the contract goods at the time of the resale and to leave the matter then to the umpire to decide and make his award. The fact that the petitioners have failed to deny the express statements made as to this agreement seems to me to be an important factor supporting the case of Mr. Mistree that there was such an agreement arrived at between the parties. I hold therefore that an agreement was arrived at between the parties on the 9th of January as contended by the respondents.'

We have perused paragraphs 7 and 8 of the affidavit and we do not find therein an averment to the effect that each party had agreed before the umpire that each of them should supply whatever information they had in their possession on the question as to damages and the price prevailing at the time when the resale took place and that the umpire was to make an award on the basis of such information without telling the party as to what information was Supplied by the other party, without hearing either party and even without holding a meeting. It is no doubt true, as has been observed by the learned Judge that the appellants have not in their affidavit in rejoinder made any categorical denial of an agreement of the kind referred to by Mr. Mistree in his arguments before the Court. But, in our Opinion, there was no occasion for the appellants to make such a denial in the absence of a categorical averment of an agreement of that kind in Marshall's affidavit. On the other hand, in the appellants' affidavit in rejoinder Vasudeo Laxminarayan reiterated the complaint made in the petition itself to the effect that no meeting was fixed after the first meeting held on the 9th of January, 1958 and that the award was made by the umpire on the 14th of February, 1958 without hearing the parties and without giving the appellants an opportunity to cross-examine the respondents and to verify the truth of the statements in the documents submitted by the respondents along with their letter of the 15th of January 1958. Again in paragraph 0 of that rejoinder the deponent has made the following complaint :

'I say that even on the statements made by the respondents it is clear that both the parties supplied the information to the umpire only and thereafter the umpire made an award straightway without holding any meeting or calling a meeting of the parties or giving them opportunities to lead evidence. The umpire has thus transgressed the fundamental principles of justice and so the award would be set aside.'

This statement as well as the previous one adverted to above clearly indicate that according to the appellants there could have been no agreement between the parties of the kind referred to by Mr. Mistree in his arguments before the learned Single Judge, fn the circumstances, therefore, we are unable to accept the view of the learned Judge that it was not open to the appellants to complain that the umpire had acted in disregard of the principles of natural justice in receiving evidence behind their back and in making an award without giving an opportunity to the appellants to be heard and test the evidence adduced by the respondents.

8. Mr. Mistree, who appears for the respondents, then contended that even assuming that the umpire did not follow the principles of natural jus-lice in the case before us, he was not bound to follow those principles. He referred us to certain rules framed by the Mill Owners' Association which also apply to the umpire and contended on their basis that they permitted the umpire to follow the kind of procedure which was followed by Mr. Pratap Bhogilal in this case. Those rules are 16, 18, 25, 26 and 29 and run as follows :

'16. The arbitrators shall have general authority to require from either or both of The parties to the reference such further statements, explanations, and other information, evidence and materials as they may consider necessary for the adjudication of the dispute or question.

'18. No party to a reference shall, without the express permission of the arbitrators be entitled to appear by counsel, attorney, advocate Or pleader, or insist on or require the arbitrators to hear or examine witnesses or receive oral or documentary evidence other than what is deemed necessary by the arbitrators.

'25. The arbitrators shall furnish the umpire with a brief statement of the facts of the case and their reasons for such failure to make an award or to agree upon their award or interim award as the case may be.

'26. The foregoing rules as to the practice and procedure before the arbitrators shall apply mutatis mutandis to the proceedings before the umpire.

'29. When a dispute or question stands referred to an umpire, he may proceed to adjudicate in the matter on the basis of the statement furnished to him by the Arbitrators as provided by Rule 25 and shall make his award thereon within 14 days of his first entering on the References or within a period of any permitted extension of time'.

Rule 26 provides that all the rules which apply to the proceedings before the arbitrators also apply mutatis mutandis to the proceedings before the umpire. Rule 16 makes it clear that the arbitrators are empowered to require the parties to furnish such further statements, explanations, evidence, materials and other information as they may consider necessary for adjudication of the dispute. But this rule does not permit the umpire to receive such statements, explanations etc. from a party behind the back of its opponent. Mr. Mistree relied heavily on Rule 18 in support of his proposition that the umpire was not bound to follow the principles of natural justice. We are, however, unable to appreciate how this rule warrants a conclusion of that kind. The rule at its highest gives a discretion to the umpire in the matter of receiving evidence oral or documentary, but by no stretch of the language used in it, can it be said to confer upon the umpire a power to receive evidence behind the back of a party when the umpire thinks it fit to permit its opponent to adduce such evidence. Mr. Mistree then relied upon Rules 29 and 29 and contended that these rules give the umpire the power to make an award even without giving a hearing to the parties. We have quoted those two rules already and all that they indicate is that the umpire has the discretion to adjudicate in the matter referred to him on the basis of the statement furnished to him by the arbitrators as provided by Rule 25. He has in fact stated clearly in his award as follows :

'Now, I, the said Pratap Bhogilal, having carefully considered all the evidence pertaining to the said reference, award as follows'.....'

This statement clearly shows that he based his award not on the statement furnished to him by the arbitrators hut upon the evidence adduced before him by the respondents in the absence of and without notice to the appellants. Rule 29 of the rules framed by the Mill Owners' Association does not warrant this procedure. We, therefore, reject this contention and hold that the rules of the Mill Owners' Association do not expressly exclude the application of the principles of natural justice.

9. Mr. Mistree then contended that in commercial arbitrations the principles of natural justice have no place and that where a matter is referred to arbitrators or to an umpire on the footing that they have expert knowledge concerning the matter which is referred to them, they are not to be guided by the principles of natural justice. He relied upon certain decisions in support of his contention. The first decision is Bhican Chand v. G. and M. Forgate : AIR1927Cal227 . In that case the learned Judge has observed that though there may arise occasions when having regard to the facts involved it would be incumbent on the Bengal Chamber of Commerce to give parties suitable opportunities of adducing evidence, it was not obligatory to give such opportunities in every Case. It was further observed there that where the question referred to arbitrators was one relating to the market rate on a particular date, prima facie it was not necessary for the arbitrators to hear oral evidence as market rates are as a rule well within their own knowledge and within the special experience for which arbitrators are selected. The learned Judges were there interpreting Certain rules-framed by the Bengal Chamber of Commerce in reference to arbitrations. What those rules were, we do not know. We will assume for the purpose of this case that it is permissible to frame a rule of the kind to be found in the rules of the Mill Owners* Association giving the arbitrators a discretion in the matter of receiving evidence, but where the discretion is exercised by the arbitrators in favour of admitting evidence, the arbitrators are expected to give notice to the opponent of the party which, adduces evidence and give that party an opportunity to challenge that evidence as well as to meet it. There is nothing in the dictum of the learned judges which would negative this proposition. As regards the other observations of the learned Judges, it is not necessary for us to consider whether it is accurate or is wide, because it is clear that in this case the umpire has not acted on the basis of his personal knowledge nor did he seek to shut out evidence on the ground that he being an expert knew what the market rates were. We would, therefore, refrain from expressing any opinion upon this point.

10. The next case relied upon by Mr. Mistree js Chandrabhan Bilotia v. Ganpatrai and Sons : AIR1944Cal127 . That decision is of a single Judge of that Court. The learned Judge has observed there that the arbitrators are not bound by those strict rules which arc applicable to Courts of law. Regarding the applicability of the principles of natural justice, the learned Judge observed :

'The question of what is 'contrary to natural justice' has arisen very often, not only in connection with arbitrations, but also in connection, for example, with cases in which the committee of a club seeks to expel a member for misconduct, or an executive body has been given, as by statute now-a-days it frequently has, power to act as judge in its own cause. It is certainly not contrary to natural justice to act on materials on which ordinary and reasonable people would naturally act. And ordinary and sensible people do constantly act and decide important matters in their own live a on materials hopelessly inadmissible in a Court of law........'.

He then pointed out that the arbitrators, however, are not to adopt any means of deciding the case which is contrary to natural justice. It is difficult to appreciate how this decision helps the contention advanced before us by Mr. Mistree.

11. The third case relied upon by Mr. Mistree is Ebrahim Kassam v. Northern Indian Oil Industries Ltd. : AIR1951Cal230 . That is also a judgment of a single Judge of that High Court. Among other things it has been observed in this case that in so far as the appraisement of the evidence before an arbitrator is concerned Courts have no power of interference. That is perfectly true, but in the case before us the question is not whether appraisement of the evidence before the arbitrators is correct or not, but whether that evidence could at all have been called in and taken, into account by the umpire before making an award.

12. Then Mr. Mistree heavily relied on the case of D. L. Miller and Co. Ltd. v. Daluram Goganmull : AIR1956Cal361 , also a decision of a single Judge of that High Court. The learned Judge has taken the view that the principles of natural justice are not attracted where parties have by their own choice agreed to a certain particular procedure and method of arbitration including a specific procedure and method of hearing the reference to arbitration. The view taken by the learned Judge appears to us to go rather far, but it is not necessary for us to examine its correctness for the simple reason that here, there are no rules nor terms in the agreement between the parties which exclude the operation of the principles of natural justice in the proceedings before the arbitrators or the umpire appointed by virtue of those rules and terms in the agreement. The law on the point has been laid down by the Supreme Court in Vengamma v. Kesanna : [1953]4SCR119 , that it is one of the elementary principles of the administration of justice, whether by Courts or by arbitration by lawyers or merchants, that a party should not be allowed to use any means whatsoever to influence the mind of the judge or arbitrator, which means are not known to and capable of being met and resisted by the other party. Where, therefore, an arbitrator allows evidence to be adduced before him in the absence of a party and uses that evidence against that party, he will be deemed to be guilty of legal misconduct. In coming to this conclusion their Lordships have relied upon the following observations of Lord Langdale M. R. in Harvey v. Shelton (1844) 7) Bcav. 455 :

'It is so ordinary a principle in the administration of justice, that no party to a cause can be allowed to use any means whatsoever to influence the mind of the Judge, which means are not known to and capable of being met and resisted by the other party, that it is impossible for a moment, not to see, that this was an extremely indiscreet mode of proceeding, to say the very least o it. It is contrary to every principle to allow of such a thing, and I wholly deny the difference which is alleged to exist between mercantile arbitrations and legal arbitrations. The first principles of justice must be equally applied in every case. Except in the few cases where exceptions are unavoidable, both sides must be heard, and each in the presence of the other. In every case in which matters are litigated, you must attend to the representations made on both sides, and you must not, in the administration of justice, in whatever form, whether in the regularly constituted Courts or in arbitrations, whether before lawyers or merchants, permit one side to use means of influencing the conduct and the decisions of the Judge, which means are not known to the other side.'

They also relied upon the observations of Lord Justice Knight Bruce in Re Haigh, Haigh v. Haigh (1861) 31 LJ Ch. 420 which are to the following effect :

'It is true that he states in his affidavit that he did not allow those explanations to influence him in his report upon the accounts, and I have no doubt he honestly intended this to be the case; but it is impossible to gauge the influence which such statements have upon the mind.'

In our opinion, the law stated and the view expressed by their Lordships would apply even to such commercial arbitrations as are not conducted on the basis of special rules which exclude the Operation of the principles of natural justice.

13. Mr. Mistree then drew our attention to a decision of Lord Goddard, C. J. in Mediterranean and Eastern Export Co. v. Fortress Fabrics 1948-2 All ER 186 in the course of which he observed :

'A man in the trade who is selected for his experience would be likely to know, and, indeed would be expected to know, the fluctuations of the market and would have plenty of means of informing himself or refreshing his memory on any point on which he might find it necessary so to do. .....I see no reason why in principle he should be required to have evidence on this point any more than on any other question relating to a particular trade. It must be taken, I think, that, in fixing the amount that he has, ho has acted on his own knowledge and experience. The day has long gone by when the courts looked with jealousy on the jurisdiction of arbitrators. The modern tendency is, in my opinion, more especially in commercial administrations, to endeavour to uphold awards of the skilled persons that the parties themselves have selected to decide the questions at issue between them. If an arbitrator has acted within the terms of his submission and has not violated any rules of what is so often called natural justice the courts should be slow indeed to set aside his award.'

It may be mentioned that the parties in the case before the learned C. J. had a dispute regarding the quality of the goods supplied under a contract and, therefore, the arbitrator had not only to decide that question, but also the further question of damages claimable by the party suffering from the breach of the contract. Now, in so far as commercial arbitrations are concerned, it has been recognised in a number of cases that the arbitrator or appraiser appointed by the parties is entirely free to act on his personal knowledge, but these cases arc of a class and the principles which govern them would not apply to a case like the present where the arbitrator or the umpire has not only no personal knowledge of the prevailing rates, but has consequently to rely upon evidence for ascertaining them. Further, where the arbitrator or umpire has to ascertain the fact whether a breach of the contract has at all occurred, as also the fact whether a resale purported to have been held after the breach of the contract is a real resale or a nominal one, he cannot depend upon his own knowledge or information. These are matters which can only be decided upon evidence. Therefore, to cases of this kind, the observations of the learned Lord Chief Justice would not apply.

14. We have stated earlier that we would specify the points noted by the umpire in his notes of the meeting held on the 9th of January, 1958. Those points are as follows :

'1. 175 B/S : 103-10/2 729/234 10/2 729/2 to be taken delivery

2. What was the reserve price and on what basis was it fixed? Information will be supplied by the mills.

3. Details of Rs. 37,756/-.

4. Price on the date of sale :

Buyer is given time of a week to produce evidence if he thinks that the price realised is abnormally low. 5. Statement for Rs. 11,000/- and odd?

6. Details re : near about sales to be supplied by Mills.

7. When did the Mills call upon the buyers to take delivery of 103 B/S and when were the invoices of these 103 B/S were submitted by the Mills to the buyer? Mill will supply information.' Now, so far as the second question is concerned, the umpire could have had no personal knowledge and indeed if he had any it is doubtful whether he would have been competent to decide the dispute at all, but with that question we need not deal, because in point of fact he did not have any knowledge of the reserve price. As regards the fourth point also the umpire had no information and so, he wanted evidence thereon. Similarly, regarding the 6th and the 7th points the umpire had no information and indeed the mere fact that ho was an expert of sorts would not suggest that he could have possibly had any knowledge of the facts which had to be ascertained by him for properly adjudicating upon the matter referred to him for decision. Thus, though this is a case of commercial arbitration, it is not one which had to be decided by the arbitrators or the umpire solely on. the basis of their expert knowledge and, therefore, the observations of Lord Goddard, C. J. would not apply to this case.

15. As to the applicability of the principles of natural justice to commercial arbitrations, we can do no better than refer to the statement of law in Russel on Arbitration, 16th Edition at page 118, which is as follows :

'It would seem to be settled, in spite of dicta to the contrary in various cases, that an arbitrator is not justified in departing from normal rules of procedure merely because the arbitration is a commercial arbitration.'

The learned Author then quoted the following passage from the judgment of Lord Langdale M. R. in (1844) 7 Beav 455 :

'I wholly deny the difference which is alleged to exist between mercantile arbitrations and legal arbitrations. The first principles of justice must be equally applied in every case; except in the few. cases where exceptions are unavoidable both sides must be heard and each in the presence of the other. In every case in which matters are litigated you must attend to the representations made on both sides, and you must not, in the administration of justice, in whatever form, whether in the regularly constituted courts or in arbitrations, whether before lawyers or merchants, permit one side to use means of influencing the conduct and the decisions of the judge, which means are not known to the other side.'

The learned Author then goes on to say that it has come to be recognised in recent years that, within particular trades and for particular types of commercial dispute, there may be an established system of arbitration not making use of ordinary legal procedure. But even so, the learned Author has not expressed an opinion to the effect that the procedure to be followed need not be in conformity with the principles of natural justice.

16. Having given our fullest consideration to the arguments advanced, we have no doubt in holding that the principles of natural justice are not to be ruled out in every commercial arbitration, and that for rendering those principles inapplicable, at least two things must co-exist. One is an express exclusion of those principles by a specific rule of a specific term in the contract of the parties and the other, that the dispute referred to the arbitration must be of such a kind as is capable of being decided by the arbitrators fairly and honestly without the due observance of the rules of natural justice. Further, even in these limited cases where rules of natural justice could be said to have been excluded, if it appears that the arbitrator or the umpire has not acted fairly or honestly or has acted in an arbitrary manner his award would be open to challenge on the ground of misconduct. To hold otherwise would be opening a door for the perpetration of fraud or rank injustice. We cannot presume that this is what the parties intended when they agreed to exclude the operation of the normal rules of natural justice. By receiving the evidence behind the back of the appellants and basing his conclusion thereon, Mr. Pratap Bhogilal, the umpire in this case, as already pointed out, clearly committed legal misconduct and, therefore, the award made by him cannot be permitted to stand. Upon this view, we set aside the award.

17. The next question is whether we should remit the award to him as is contended for by Mr. Mistree, or, whether we should just set it aside and leave the matter where it is i.e., leave it to the respondents to take such further steps in the matter as they may deem appropriate. Mr. Mistree has quite rightly pointed out that the arbitrators are not even alleged to have acted in a dishonest way nor is it even suggested that they were carried away by any prejudice. Even so, it seems to us that this is not the kind of case where we have the power to remit the award to the umpire. The provision governing the matter is Section 16 of the Arbitration Act which runs thus :

'16. (1) The Court may from time to time remit the award or any matter referred to arbitration to the arbitrators or umpire for reconsideration upon such terms as it thinks fit-

(a) where the award has left undetermined any of the matters referred to arbitration, or where it determines any matter not referred to arbitration and such matter cannot be separated without affecting the determination of the matters referred; or

(b) where the award is so indefinite as to be incapable of execution; or

(c) where an objection to the legality of the award is apparent upon the face of it.

(2) Where an award is remitted under Subsection (1) the Court shall fix the time within which the arbitrator or umpire shall submit his decision to the Court :

Provided that any time so fixed may be ex-tended by subsequent order of the Court. (3) An award remitted under Sub-section (1) shall become void on the failure of the arbitrator or umpire to reconsider it and submit his decision within the time fixed.'

The power of the Court to remit an award which has been set aside is thus restricted by Clauses (a), (b) and (c) of Section 16(1) and, therefore, unless a case falls under any of these clauses, the Court has no power to remit an award to the arbitrator or umpire. Clearly, the case does not come under Clause (a) or Clause (b), but it is suggested that it comes under Clause (c). The error with which we are concerned here is quite clearly one apparent on the face of the record, but it is not one which is apparent on the face of the award. Now, Clause (o) clearly contemplates an error which is apparent on the face of the award. This error not being of that kind, the case does not fall under this clause either. Mr. Mistree referred us to two decisions which are referred to in Paruck on Arbitration, 2nd Edition at page 161. The decisions are Aboobaker v. Reception Committee 48th Indian National Congress 39 Bom LR 476 : AIR 1937 Bom 410 and In re Crompton and Go. Ltd. : AIR1914Cal770 . In the former case it is held that where there has been misconduct on the part of the arbitrator, the Court has the power to remit the award to him. In the latter case it has been held that where an award is set aside on the ground of the legal misconduct of the arbitrator, the Court has the power to remit the award to him. It seems tous that neither of these two decisions can be availed of by the respondents. Those decisions were under the Arbitration Act 1899 Section 13 of which conferred a wide power on the Court in the matter of remitting awards to arbitrators and umpires. The old section ran thus :

'The Court may from time to time, remit the award to the reconsideration of the arbitrators of umpire.....'

No fetters are put on the powers of the Courtunder this section, but as would be seen by a comparison, fetters have been placed on the powers of the Court in Section 16 of the present Act by enacting Clauses (a), (b) and (c), and limiting the power of the Court to remit cases only to them which fall within one of these clauses. It may be mentioned that to some extent the present provision is a combination of Section 13 of the Act of 1899 and of paragraph 14 of the Second Schedule of the Civil Procedure Code. As is well known, the provisions of Schedule II of the Civil Procedure Code applied to arbitrations with the intervention of the Court whereas the provisions of the Arbitration Act of 1899 applied to arbitrations under an agreement between the parties without the intervention of the Court. Now, it has been held by this Court in 39 Bom LR 476 :AIR 1937 Bom 410 already referred to above, that the court's power to remit an award to an arbitrator is not restricted by the provisions of paragraph 14 of the Second Schedule of the Civil Procedure Code and that the Court may remit an award on the grounds (1) that there is some defect patent on the face of the award, (2) that the arbitrator has made a mistake and himself desiresthat the award should be remitted to him, (3) that some material evidence has been discovered since the making of the award which might have affected the arbitrator's decision and (4) misconduct. The court further observed that these grounds are not exhaustive. It was argued before it that as provided by paragraph 14 of the Second Schedule of the Civil Procedure Code an award could only be remitted (a) where it has left undetermined any of the matters referred to arbitration, (b) where the award is so indefinite as to be incapable of execution and (c) where the award on the face of it is illegal and, therefore, unless one of these conditions is satisfied the Court has no power to remit an award. This contention was negatived in that case. The same view was taken in the Calcutta case. It seems to us to be incontestable, that in view of the provisions of Section 16 the power of the court to remit an award to the arbitrator is limited to the three types of cases referred to therein. Such being the law, We cannot accept Mr. Mistree's request that we should remit the award to Pratap Bhogilal.

18. Accordingly, we allow the appeal and set aside the judgment of Mr. Justice Shelat. Thecosts here and in the Court below will follow the event.

19. We are informed by Mr. Mody that onthe dismissal of the petition a decree was passed interms of the award. Since we have set aside theaward which is the basis of the decree, the decreestands annulled. The appellants' attorneys aregiven liberty to withdraw the amount deposited inthis Court.

20. Appeal allowed.


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