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Modern Builders Vs. Hukmatrai N. Vadirani - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtMumbai High Court
Decided On
Case NumberAppeal No. 69 of 1966
Judge
Reported inAIR1967Bom373; (1967)69BOMLR237
ActsArbitration Act, 1940 - Sections 3, 8 and 25; Evidence Act, 1872 - Sections 115; Code of Civil Procedure (CPC), 1908
AppellantModern Builders
RespondentHukmatrai N. Vadirani
Appellant AdvocateD.R. Dhanuka, Adv.
Respondent AdvocateMaghanmal Bhojraj, Adv.
Excerpt:
.....of an umpire and that it was desirable that they should nominate an umpire soon after they are appointed arbitrators. the real question, therefore, is whether the legislature intended that the failure of the arbitrators to appoint an umpire should result in depriving them of the power to proceed with the arbitration and in rendering invalid any award made by them. ..(8) we have seen above that a umpire has no function to perform if the arbitrators do not disagree and proceed to make an award within the agreed time or such extended time as may be allowed by the court when an award made by an even number of arbitrators is challanged on the ground that then had failed to appoint an umpire the challenge is necessarily made in circumstances in which anumpire, if appointed, had no function..........court may allow. the functions of an umpire have been specified in clauses 4 and 5 of the first schedule. clause 4 provides that if the arbitrators have allowed their time to expire without making an award or if they have delivered to any party or to the umpire a notice in writing stating that they cannot agree. 'the umpire shall forthwith enter on the reference in lieu of the arbitrators'. clause 5 says that the umpire shall make his award within two months of entering on the reference or within such extended time as the court may allow. it is clear from these provisions that an umpire replaces the arbitrators if the latter fail to make an award within the time allowed to them of fail to agree with each other and that the umpire has no function is such a contingency does not.....
Judgment:

Tarkunde, J.

(1) This appeal arises from an order of the Bombay City Civil Court refusing to set aside an award made on a Court reference.

(2) The appellants before us were the original plaintiffs. They had filled a suit in the Bombay City Civil Court for the recovery of Rs. 14, 900 and odd from the defendant. When the suit reached hearing on 6th April, 1963, the matter in dispute was by consent of the parties referred to the arbitration of two arbitrators, who were the two Advocates of the parties. One of the terms in the order of reference provided that the two arbitrators 'shall nominate an umpire'. The arbitrators did not appoint an umpire but heard the parties and received their evidence in three meetings held on the 13th the 16th and the 17th of May,. 1963. The time for making the award was enlarged by the Court by consent of parties. The arbitrators made an award on 28th November, 1964. by which they directed that the defendant shall pay to the plaintiffs Rs. 8,500 with interest and costs. being dissatisfied with the award the plaintiffs applied to the City Civil Court for setting it aside. The main ground advanced on their behalf was that the provision contained in Clause 2 of the First Schedule of the Arbitration Act, 1940, which required the arbitrators to appoint an umpire was a mandatory provision and that the breach of that provision by the arbitrators rendered the award invalid. The learned trial Judge held that the award was not invalid, that the provision in clause 2 of the First Schedule was not mandatory and that in any case the plaintiffs had by their conduct waived the non-compliance with that provision. This decision has been challenged by the plaintiffs in this appeal.

(3) Although the order of reference made by the trial Court by consent of parties contained a clause that the two arbitrators 'shall nominate an umpire' the clause did not provide the time within which the nomination was to be made. Section 3 of the Arbitration Act, 1940, which relates to an arbitration without the intervention of a Court lays down that-

'An arbitration agreement, unless a different intention is expressed therein, shall be deemed to include the provisions set out in the First Schedule in so far as they are applicable to the reference.'

By Section 25 the provision of Section 3 has been made applicable to arbitration in suits. Clause 2 of the First Schedule on which the plaintiffs rely is in the following terms:

'If the reference is to an even number of arbitrators, the arbitrators shall appoint an umpire not later than one month from the latest date of their respective appointments.'

Since a different intention has not been expressed in the decretal order of reference this clause must be deemed to have been included in that order by virtue of Section 3 read with Section 25 of the Act.

(4) On behalf of the plaintiffs Mr. Dhanuka urged before us that Clause 2 of the First Schedule is mandatory and that the failure of the arbitrators to appoint an Umpire as required by that clause must render their award invalid. Judicial opinion does not appear to be uniform on whether that clause is mandatory. It will be convenient if we first deal with that question on principle before referring to authorities.

(5) In considering whether Clause 2 of the First Schedule is mandatory or directory, it is material to notice what function an Umpire is expected to perform. An Umpire is not an arbitrator ab initio. He does not act as a third arbitrator. He has no function to perform if the two arbitrators do not disagree with each other and proceed to make an award within the agreed time or within such extended time. as the Court may allow. The functions of an Umpire have been specified in Clauses 4 and 5 of the First Schedule. clause 4 provides that if the arbitrators have allowed their time to expire without making an award or if they have delivered to any party or to the Umpire a notice in writing stating that they cannot agree. 'the umpire shall forthwith enter on the reference in lieu of the arbitrators'. Clause 5 says that the Umpire shall make his award within two months of entering on the reference or within such extended time as the Court may allow. It is clear from these provisions that an Umpire replaces the arbitrators if the latter fail to make an award within the time allowed to them of fail to agree with each other and that the umpire has no function is such a contingency does not arise.

(6) Although an Umpire has no function to perform in the absence of a disagreement between the arbitrators or their failure to make an award in the time allowed, the terms of Clause 2 clearly show that the Legislature intended that the arbitrators shall appoint an umpire as a matter of course irrespective of whether they do or do not agree with each other. Mr. Dhanuka pointed out in this connection that prior to the Arbitration Act of 1940 it was not obligatory on the arbitrators when they were even in number to appoint an Umpire. The corresponding clause in the First Schedule to the Indian Arbitration Act of 1899 provided that the arbitrators 'may appoint an Umpire at any time within the period during which they have power to make an award' In Clause 2 of the First Schedule of the Arbitration Act of 1940 the language was changed and it was provided that the arbitrators 'shall appoint an Umpire not later than one month from the latest date of their respective appointments.' The change was undoubtedly deliberate, and it appears to have been made because the Legislature felt that the arbitrators, if they fail to agree on the matters referred to them may also disagree on the nomination of an Umpire and that it was desirable that they should nominate an Umpire soon after they are appointed arbitrators. Relying on this legislative history. Mr. Dhanuka argued that the use of the word 'shall' in Clause 2 of the First Schedule instead of the word 'may' which appeared. in the corresponding clause of the earlier Act, showed that the Legislature intended that the provision of clause 2 should be mandatory and not directory. We do not agree that the use of the word 'shall' is decisive of the question When the Legislature had used the word 'may' in the former clause, the appointment of an Umpire by the arbitrators was discretionary. With the use of the word 'shall' in the present clause the appointment has been made obligatory. It is, however, obvious that an obligatory rule may be either mandatory or directory, depending upon whether the Legislature intended that non-compliance with the rule should or should not result in the nullification of subsequent proceedings. The real question, therefore, is whether the Legislature intended that the failure of the arbitrators to appoint an Umpire should result in depriving them of the power to proceed with the arbitration and in rendering invalid any award made by them.

(7) As observed in Maxwell on Interpretation of Statutes, the question must be decided on the scope and object of the provision in question and on consideration of convenience and justice. The learned author says (11th edition page 364):-

'It has been said that no rule can be laid down for determining whether the command is to be considered as a mere direction or instruction involving no invalidating consequence in its disregard, or as imperative, with an implied nullification for disobedience, beyond the fundamental one that it depends on the scope and object of the enactment. It may, perhaps, be found generally correct to say that nullification is the natural and usual consequence of disobedience, but the question is in the main governed by considerations of convenience and justice, and, when that result would involve general inconvenience or injustice to innocent persons, or advantage to those guilty of the neglect, without promoting the real aim and object of the enactment, such an intention is not to be attributed to the legislature.......'

(8) We have seen above that a umpire has no function to perform if the arbitrators do not disagree and proceed to make an award within the agreed time or such extended time as may be allowed by the Court when an award made by an even number of arbitrators is challanged on the ground that then had failed to appoint an Umpire the challenge is necessarily made in circumstances in which anumpire, if appointed, had no function to perform. The arbitrators make an award when they agree with each other, and the fact that they make an award itself shows that an Umpire, if he had been appointed, would not have been required to enter on the reference as contemplated by Rule 4 of the First Schedule. No considerations of convenience or justice require that an award made in such a case should be invalid.

(9) On the other hand, even in cases where the arbitrators do ot agree with each other, a failure on their part to appoint an umpire would not necessarily render the arbitration proceedings infructuous. In such a case any party to the reference can approach the Court under Section 8 for the appointment of an Umpire Section 8(1)(e) provides interalia that where the arbitrators are required to appoint an umpire and do not appoint him, any party may serve the arbitrators with a written notice to concur in the appointment of an Umpire. Sub-section (2) of Section 8 provides that if the appointment is not made within fifteen clear days after the service of the said notice, the Court may, on the application of the party who gave the notice and of being heard, appoint an umpire.

(10) Thus, if the provision contained in Clause 2 of the First schedule is considered in the context of Clause 4 and 5, which define the functions of an Umpire and Section 8 which provides for the appointment of an Umpire by the Court, it would appear that non-compliance with Clause 2 was not intended by the Legislature to have the consequence of nullifying the proceedings before the arbitrators, The arbitrators may either agree or fail to agree. In the first eventually the appointment of an umpire is redundant and is the second the failure of the arbitrators to appoint an Umpire can be made good by the Court appointing an Umpire. That being so, compliance with Clause 2 cannot be regarded as a condition for the validity of an award in the absence of an express legislative provision to that effect.

(11) There is another reason why Clause 2 must be held to be directory and not mandatory. Under that clause the arbitrators are to appoint an umpire within one month of their appointment. Nothing, however prevents the arbitrators from hearing the parties and giving an award within a month of their appointment. Clause 2 dies not provide that the arbitrators shall appoint an Umpire before they enter on the reference. If the arbitrators give an award within one month of their appointment it is not contemplated that they should subsequently appoint an Umpire. That shows that Clause 2 could not have been intended by the Legislature to be mandatory.

(12) It also appears that the time limit of one month for the appointment of an Umpire specified in clause 2 was not intended by the Legislature to be mandatory. If the arbitrators were to appoint an Umpire after the period of one month the appointment would not be invalid. This is clear from the terms of Section 8. As observed earlier, Clause (1)(c) of the arbitrators with a written notice to concur in the appointment of an Umpire 'Where the arbitrators are required to appoint an Umpire and do not appoint him.' The arbitrators cannot be said to have failed to appoint an Umpire till the expiry of the period of one month specified in Clause 2 of the First Schedule. It follows that the written notice to be served on arbitrators which is contemplated by Clause (1)(c) of Section 8 can only be given after the expiry of the said period of one month. The Sub-section (2) of Section 8 says that 'if the appointment is made within fifteen clear days after the service of the said notice', the Court may itself appoint an Umpire. This provision clearly contemplates that the arbitrators may appoint an Umpire after they receive a notice from a party under Sub-section (1)(c) of Section 8, which notice itself would be given to them after expiry of the period of one month specified in Clause 2. Thus terms of Sub-section (2) of Section 8 shows that the Legislature itself contemplated a valid appointment af an Umpire being made by the arbitrators after the expiry of the period specified in Clause 2.

(13) Turning to the authorities, the only decision of this Court which was cited before us was that of a Single Judge in Vinayak Vishnu Sahasrabudhe v. B.G. Gadre. : AIR1959Bom39 . In that case an award made by two arbitrators without appointing an Umpire was set aside. A reference to the judgment shows that the decision turned on the wording og the arbitration agreement which required the arbitrators to nominate an Umpire before they proceed 'to start an inquiry'. The learned Judge held that in view of the express term of the agreement mentioned above, Clause 2 of the First Schedule was not attracted and that the matter was governed only by the said term of the arbitration agreement. In the course if his judgment, however, the learned Judge made some observations, which are clearly obiter, to the effect that Clause 2 of the First Schedule in the mandatory and not merely directory. No reasons are given by the learned Judge in support of this view. The learned Judge referred to two decisions of the Nagpur High Court and expressed his agreement with one of them. He also referred with approval to a decision of the Allahabad High Court.

(14) The decision of the Nagpur High Court with which the learned Judge expressed agreement was in Firm Shriram Haracharandas v. President. The Cotton Seed Forward Delivery Managing Association Ltd.. AIR 1955 Nag 236 There are some casual observations in that case on Clause 2 of the First Schedule, but those observations do not show that, according to the learned Judges who decided that case, the provision of Clause 2 of the First Schedule was mandatory. On the other hand the Nagpur decision with which a disagreement was expressed in the aforesaid Bombay case in Tikaram Khupchand v. Hansraj Hazariaml. AIR 1954 Nag 241. Detailed reasons are given in that judgment in support of the view that Clause 2 of the First Schedule is directory and not mandatory. With respect we are in agreement with the view expressed in that judgment.

(15) The decision of the Allahabad High Court on which reliance was placed in the Bombay case was in Jawala Prasad v. Amar Nath, : AIR1951All474 . In that case an award which was made by two arbitrators in a Court reference was held to be invalid on the ground that the arbitrators had not appointed an Umpire. It was held that the provision of Clause 2 of the First Schedule is of a mandatory character, but no reasons were given in support of that view. The authority of this case has be considerably shaken as a result of the subsequent decision of the same Court in Shambhu Nath v. Hari Shankar Lal. : AIR1954All673 . One of the Judges who was member of the Bench which decided this later case. Here also two arbitrators had made an award without nominating an Umpire. The learned Judge referred to the provision contained in Section 8(1)(c) of the Act and observed that the failure to appoint an Umpire is not a breach of Clause 2 of the First Schedule as to vitiate the award and that the breach may amount merely to an irregularity which it is possible to Waive. Referring to the earlier case in : AIR1951All474 . it was observed that the learned Judges in that case had taken care 'to confine their decision to the fact of that particular case.'

(16) Mr. Dhanuka, however, relied upon a subsequent decision of a Single Judge of the Allahabad High Court in Ram Kishore v. Raj Narain Dubey : AIR1963All23 . In this case the learned Judge confirmed the order of the lower Court setting aside an award made by two arbitrators within a month of their appointment without nominating an Umpire. The learned Judge relied on the decision in : AIR1951All474 . and distinguished the subsequent case of : AIR1954All673 . on the ground that the aware in that case was made more than one month after the appointment of arbitrators, so that the parties ahd an opportunity to approach the Court for the appointment of an Umpire under Section 8(1)(c) of Act. The learned Judge held that where the arbitrators failed to appoint an Umpire as required by the mandatory provision of Section 2 of the First Schedule and gave an award within one month of their own appointment so as to deprive the parties of any opportunity to take recourse of Section 8(1)(c) of the Act, the award made is invalid. With respect we are quire unable to agree with this view. There is nothing in Clause 2 of the First Schedule or any other provision of the Act which prevents the arbitrators from giving an award within one month of their appointment or which requires the arbitrators to appoint an Umpire prior to the end of the said period of one month.

(17) Mr. Dhanuka relied on a decision of a single Judge of the Calcutta High Court in Harak Chand Damini v. Ramsarup Lakkar. 85 CLJ 232. In that case it was held inter alia that the appointment of an Umpire by two arbitrators after the expiry of the period of one month specified in Clause 2 of the First Schedule was invalid. With respect we do not agree with this view. We have pointed out above that the provision of sub-section (2) of Section 8 indicates that the Legislature contemplated a valid appointment of an Umpire being made by the arbitrators after the lapse of the period of one month mentioned in Clause 2 of the First Schedule.

(18) There is another decision of the Calcutta High Court, United Printing and Building Works v. Kishori Lal, : AIR1956Cal593 , which is in conformity with our view that Clause 2 of the First Schedule is not a mandatory provision. IN that case a single Judge overruled an objection which had been taken to the validity of an award made by two arbitrators without appointing an Umpire. The learned Judge held that non-compliance with Clause 2 of the First Schedule did not vitiate the award.

(19) Decisions in conformity with the view which we are inclined to take are also found in Louis Dreyfus and Co. v Hemandas Hatchand. AIR 1940 Sind 37; Sheoramprasad Ram Narayanlal Bania v. Gopalprasad Parmeshwardayal Shukla. : AIR1959MP102 ; Chacko v. Chacko : AIR1959Ker149 ; and Ratnawa v. Furushiddappa Gurushantappa Magavi & Co. AIR 1962 Mys 135. Thus the bulk of judicial opinion favours the conclusion that the provision contained in Clause 2 of the First Schedule is directory and not mandatory.

(20) Supposing however that Clause 2 of the First Schedule is mandatory, we are of the view that its breach does not invalidate the award in the present case because where the plaintiffs have by their conduct waived the non-compliance with that provision. After the expiry of the time specified in Clause 2 of the First Schedule for the appointment of an umpire, three meetings were held by the arbitrators and the plaintiffs appeared at those meetings and produced their evidence. They also agreed to the extension by the Court of the time for making the award . Having thus waived the non-compliance with Clause 2 of the First Schedule, the plaintiffs cannot object to the award on that ground.

(21) In some of the cases cited above it was assumed that a directory provision is capable of being waived but not a mandatory provision. With respect it does not appear to us that the principle of waiver is applicable to directory provisions only and that it cannot extend to mandatory provisions. There are two well recognised limitations to the application of the principle of waiver. In the first place, a party cannot waive a statutory requirement which has been inserted by the Legislature in the public interest as distinguished from the interest of the parties to an action. Secondly, the parties cannot by waiver invest a tribunal with a jurisdiction which it does not have. In 'Craise on Statute Law' the learned author has observed (6th edition, page 269):-

'If the object of a statute is not one of general policy or if the thing which is being done with benefit only a particular person or class of persons. then the conditions prescribed by the statute are not considered as being indispensable. As a general rule, the conditions imposed by statutes which authorise legal proceedings are treated as being indispensable to give the court jurisdiction. But if it appears that the statutory conditions. were inserted by the legislature simply for the security or benefit of the parties to the action themselves. and that no public interests are involved, such conditions will not be considered as indispensable. and either party may waive them without affecting the jurisdiction of the Court......'

The requirement contained in Clause 2 of the First Schedule regarding the appointment of an Umpire by the arbitrators is for the benefit of the parties to a reference and does not involve the public interest. It is also clear that the appointment of an umpire is not a condition which determines the jurisdiction of the arbitrators to decide the dispute referred to thim. It must follow that the requirement of Clause 2 of the First Schedule is capable of being waived.

(22) As an instance of a mandatory provision which was held to have been waived by a party we may refer to the decision of a Division Bench of this Court in Bandu Hari Kamble v. Bhagya Laxman : AIR1954Bom114 . In that case a notice under Order XXI,. Rule 22 of the Civil Procedure Code had not been issued to a judgment-debtor but the latter had actually appeared in execution proceedings and had raised various objections but not the objection regarding the failure to issue such a notice. The court observed that the provision contained in Order XXI, Rule 22 of the Civil Procedure Code, regarding the issue of a notice to the judgment-debtor was mandatory but that the provision was enacted for the benefit and protection of the judgment-debtors and can be waived by them.

(23) In an effort to show t hat the principle of waiver cannot apply to the present case, Mr. Dhanuka relied on the decision of a Division Bench in Sherbanubai Jafferbhoy v. Hooseinbhoy Abdoolabhoy 50 Bom LR 89; AIR 1948 Bom 292. In that case a refer nce to arbitration had been made by an order of the Court and after the reference the parties agreed to confer on the arbitrator wider pores than those which were given by the Court's order of reference. It was held that the award made in the exercise of those wider powers was invalid. The Division Bench held that where a reference to arbitration is made without an order of the Court the parties are at liberty to agree to alter or amend the terms of reference, but that no such alteration or amendment can be made in a Court reference without an order of the Court to that effect. The Division Bench observed:-

'Where, therefore, in a reference to arbitration by an order of the Court the parties desire that an arbitrator should have powers wider than or different from those originally conferred upon him by the order of the Court, the proper procedure for the parties to follow n is to go back to the Court and get a fresh order of reference or get the original order of amended or altered; but parties cannot by their mere consent confer upon the arbitrator powers different from those which the Court had originally conferred.........'

Relying on this decision Mr. Dhanuka argued that the provision contained in Clause 2 of the First Schedule was by virtue of Section 25 of the Act incorporated in the decretal order of reference made by the City Civil Court in the present case, that the said term was incapable of being altered or amended by consent of parties without a fresh order of the Court to that effect, and that therefore the term was incapable of being waived by either party. We are unable to accept this ingenuous argument. When a party waives certain provision he does not purport to vary or amend it. He merely agrees to its non-compliance. If waiver implied variation or amendment of the provision which is claimed to have been waived. there can never be any waiver of a statutory provision for no party has the right of altering or amending a statute. The parties in the present case could not have altered or amended any of the terms of reference express or implied, without the sanction of the Court, but this did not prevent them from waiving one of those terms.

(24) Finally it was argued by Mr. Dhanuka that even if the provision contained in Clause 2 of the First Schedule were held to be directory the breach of that provision by the arbitrators amount to legal misconduct and vitiates the award. There is no substance in this argument. Since the arbitrators did not disagree with each other. an umpire had no function to perform in the present arbitration, even if he were appointed in pursuance of Clause 2 of the First Schedule. The non appointment of an umpire cannot, under the circumstance, amount to legal misconduct.

(25) In the result the appeal fails and is dismissed with costs.

(26) Appeal dismissed.


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