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Fazalally Jivaji Raja Vs. Khimji Poonja and Co. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtMumbai
Decided On
Case NumberO.C.J. Award No. 27 of 1933
Judge
Reported inAIR1934Bom476; (1934)36BOMLR1005
AppellantFazalally Jivaji Raja
RespondentKhimji Poonja and Co.
DispositionAppeal allowed
Excerpt:
indian arbitration act (ix of 1899), section 11 - east india cotton association, limited, bylaws (1929), by-laws 38 and 39+-award-submission-intention of parties-arbitrators to act jointly throughout proceedings-reference to fluctuating body of arbitrators-mercantile usage, principle of natural justice applicable to.;in determining the mode of working out the submission to an arbitration and reaching a final decision thereon, the intention of the parties is to be the sole guide. the law of arbitration is based on the principle of withdrawing the dispute from the ordinary courts and enabling the parties to substitute a domestic tribunal. once that tribunal reaches a final decision as contemplated or agreed upon by the parties, then the indian arbitration act steps in to help the parties to.....rangnekar, j.1. the respondents are cotton brokers and members of the east india cotton association, ltd. the petitioner entered into certain forward transactions with them for the sale of broach cotton april-may delivery, 1933. the petitioner is not a member of the east india cotton association, ltd. in respect of the said dealings the respondents claimed from the petitioner a sum of rs. 1,35,141. the petitioner denied his liability to pay the said sum, and a dispute arose between the parties. the contracts were subject to the by-laws of the east india cotton association, ltd., and under bye-law no. 38 the dispute was referred to the arbitration of two of the members of the east india cotton association, ltd., before the arbitrators evidence was led on behalf of the parties, but no.....
Judgment:

Rangnekar, J.

1. The respondents are cotton brokers and members of the East India Cotton Association, Ltd. The petitioner entered into certain forward transactions with them for the sale of Broach cotton April-May delivery, 1933. The petitioner is not a member of the East India Cotton Association, Ltd. In respect of the said dealings the respondents claimed from the petitioner a sum of Rs. 1,35,141. The petitioner denied his liability to pay the said sum, and a dispute arose between the parties. The contracts were subject to the by-laws of the East India Cotton Association, Ltd., and under bye-law No. 38 the dispute was referred to the arbitration of two of the members of the East India Cotton Association, Ltd., Before the arbitrators evidence was led on behalf of the parties, but no record was kept by the arbitrators of the proceedings before them. The arbitrators differed, whereupon the dispute was referred to Mr. Boyagist of Messrs. Langley & Co. as an umpire. Evidence was led before the umpire also, and he put certain questions to the arbitrators. No record, however, was kept by the umpire of the proceedings before him. On November 22, 1932, the umpire made his award in favour of the petitioner. The respondents, thereupon, filed an appeal against the said award to the board of directors of the Association under by-law No. 39, to which the petitioner submitted a rejoinder. The appeal was first heard on February 21, 1933, at which meeting certain members of the board of . directors were present. The parties appeared by counsel, and the arguments of the counsel for the respondents were partly heard on that day. The hearing of the appeal was then adjourned to March 6, 1933. It did not reach a hearing on that day, and was further adjourned to March 15, 1933. At the hearing of the appeal on March 15, some of the directors, who were present at the hearing of February 21, were not present, and some other directors, who were not present at the hearing of February 21, were present. At this hearing counsel for the respondents finished his arguments, and counsel for the petitioner commenced his; but as the same were not finished on that day, further hearing was adjourned to March 17, 1933. At the hearing on March 17, 1933, some of the directors who were present at one or both of the previous hearings were not present, and some directors who were not present at the earlier meetings or either of them were present. The petitioner applied for an adjournment of the hearing of the appeal, but his application was refused. Thereupon, the petitioner withdrew from the appeal, and the directors who were present at the said meeting made an award in favour of the respondents, and set aside the award of the umpire. By this award the board of directors awarded a total sum of Rs. 1,35,141 to the respondents against the petitioner with interest.

2. This award was filed in this Court on March 23, 1933, and notice thereof was given by the secretary of the East India Cotton Association, Ltd., to the petitioner on the following day. On March 24, the respondents applied for execution of the said award, and in execution got the petitioner's property attached under a warrant of attachment. It is under these circumstances that the petitioner has filed the present petition, and he contends that the award cannot be filed under Section 15 of the Indian Arbitration Act, and, secondly, that it is illegal, void and of no effect. His contentions briefly are :-(1) that the award of the board of directors in appeal from the award made by the umpire is not within the Indian Arbitration Act and cannot be filed, as it is not the award either by the arbitrators or the umpire, and he prays that it should be taken off the file; and (2) the award is illegal on the ground that it was made by persons some of whom were not present at the earlier hearings, and some who were present at the earlier hearings had not joined in the making of the award, and that the arbitrators did not act together in the making of the award, and the award is against the principles of natural justice. At the hearing one more ground was taken on behalf of the petitioner in support of his first contention, and that is that the award is not signed by all the members of the board of directors who made the award, but only by the chairman of the board.

3. Exhibit A is a statement giving the names of the directors present at the various meetings. The statement is admitted to be correct on behalf of the respondents. The statement shows (1) that the three directors who were present at the first meeting of February 21 were not present at the second meeting of March 15; (2) two of the directors who were present at the second meeting of March 15 were not present at the first meeting of February 21; (3) one member present at the first meeting of February 21 was not present at the second meeting of March 15, but was present at the final meeting of March 17; (4) two members present at the second meeting of March 15 were not present at the final meeting of March 17; (5) two members who were present at the first meeting of February 21 were not present at the final meeting of March 17 ; and (6) six members who were present at the first meeting of February 21 were also present at the second as well as the final meeting of March 15 and 17, respectively.

4. The respondents deny that the award is not within the Indian Arbitration Act, and they contend that the proceedings before the board of directors in the matter of the said appeal and the award are in accordance with the articles of association and the by-laws of the Association and are valid and binding on the petitioner. They further state that ever since the inception of the Association appeals in respect of awards under the by-laws have been heard and disposed of at meetings of the board of directors convened from time to time and at such meetings the directors present have not been the same and have been different, and this fact was well known to the petitioner. They further say that the petitioner acquiesced in the proceedings although he knew that some of the directors present at each of the said three meetings were different; and assuming there was an irregularity, such irregularity was waived by or on behalf of the petitioner. As regards the second contention they say that it is the practice of the board of directors of the East India Cotton Association, Ltd., when appeals are being heard against awards, to circulate beforehand all papers relating to the appeal to all the members of the board of directors, and also when the hearing of the appeal is stayed over several hearings, to circulate from time to time to all the members of the board of directors the proceedings which take place at each of the said meetings. They further say that by reason of this practice though all the members of the board of directors may not happen to be present at all the meetings, they are kept well informed as to the proceedings which take place at each of the meetings of the board of directors in respect of all appeals heard by them. They say that having regard to the constitution of the Association and the by-laws made by them, the award made by the board is valid and binding.

5. It may be stated that the evidence of the secretary of the Association shows that the contention of the respondents as regards the practice followed by the board of directors is well founded, but as no record of the evidence taken by the arbitrators or by the umpire was kept, all that was circulated was the correspondence between the parties, the contracts and the award of the umpire, as well as the minutes of the meetings of the board of directors.

6. The first question is, whether the decision of the board is an award capable of being filed in Court under Section 11 of the Indian Arbitration Act. There is no dispute in this case that the contracts between the parties were subject to the rules and by-laws of the East India Cotton Association, Ltd. The material by-law is by-law No. 38 which, inter alia, provides that all disputes arising out of or in relation to contracts, whether . forward or ready, and whether between members or between a member and a non-member, made subject to these by-laws, shall be referred to the arbitration of two disinterested persons, one to be chosen by each party. It further provides that the arbitrators shall have power to appoint an umpire, and shall do so if and when they differ as to their award. The explanation to the by-law says that the award shall be deemed to have been made on the date when the arbitrators have first recorded their decision in writing. Then there is a proviso for the appointment of an umpire and for the time within which the umpire has to make his award. Sub-clause E provides that the award of any two arbitrators or their umpire shall be final and binding on both parties, subject to a right of appeal to the board within ten days from the date of publication of the award. The by-law further says that if either party to the dispute refuses to abide by and perform the decision of the arbitrators or the umpire or their board, as the case may be, the award shall be filed in the High Court, and such party shall pay the costs between attorney and client in connection with the filing and enforcement of the award, unless the Court shall otherwise direct. It is argued that this last provision for filing the award in the High Court contemplates that the award made by the board has also to be filed in the High Court. That, no doubt, seems to be so, but the question as to what award can be filed in this Court must turn on the provisions of the Indian Arbitration Act. By-law No. 39 says (omitting unnecessary words) that an appeal shall lie to the board.

7. Section 2 of the Indian Arbitration Act says that the Act applies only in cases where, if the subject-matter submitted to the arbitration were the subject of a suit, the suit could, whether with leave or otherwise, be instituted in a presidency-town. Section 4 (b) defines a 'submission' as meaning a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not. It will be seen from this definition that it makes no attempt to lay down how the arbitration is to be worked out and what should be the number of arbitrators. Subject to the provisions of Section 6, the Act leaves it open to the parties to settle the lines on which the arbitration is to be carried out. Section 6 is in the terms following:

A submission, unless a different intention is expressed therein, shall be deemed to include the provisions set forth in the First Schedule, in so far as they are applicable to the reference under submission.

8. It is clear from this section that the intention of the parties is to be the sole guide for determining the mode of working out the submission and reaching a final decision. The law of arbitration is based upon the principle of withdrawing the dispute from the ordinary Courts and enabling the parties to substitute a domestic tribunal. Once that tribunal reaches a final decision as contemplated or agreed upon by the parties, then the Indian Arbitration Act steps in to help the parties to enforce the said decision. Section 19 of the Indian Arbitration Act enables the parties to apply to the Court for a stay of the suit brought by his opponent in defiance of an existing submission to refer disputes to arbitration. Now there is no doubt, having regard to the terms of the contract between the parties which, as I have said, are subject to the by-laws of the Association, that, if either party had instituted a suit in this Court for determining the disputes which arose between them, the other party would have successfully maintained an application for stay of the suit under the provisions of Section 19. If this is correct, then it is difficult to see why there is a submission between the parties within the meaning of Section 19 of the Indian Arbitration Act and not a submission between the parties within the meaning of other sections of the Act.

9. The term 'submission' is construed very broadly. A contract which provides that a dispute arising in relation thereto should be tried by a foreign Court is considered a submission of any dispute arising between the parties to the arbitration of such foreign Court. In Haji Abdulla v. Stamp : AIR1924Bom381 a policy of marine insurance provided:.All disputes must be referred to England for settlement, and no legal proceedings shall be taken to enforce any claim except in England, where the underwriters are alone domiciled and carry on business.

The plaintiffs who had a claim under the policy filed a suit to enforce it against the defendants-underwriters in the High Court of Bombay. The defendants took out a chamber summons under the Indian Arbitration Act for an order staying the proceedings in the suit. It was held that the above clause in the policy of insurance amounted to a submission to arbitration, and that therefore the suit should be stayed pending the result of such arbitration. In Austrian Lloyd Steamship Company v. Gresham Life Assurance Society [1903] 1 K.B. 219 a policy of life insurance was effected by a foreigner with an English insurance company, which had a branch office at Budapest. The policy, which was in the French language, provided that the premiums and insurance moneys should be payable at Budapest, and contained a condition, of which the English translation was as follows:

For all disputes which may arise out of the contract of insurance, all the parties interested expressly agree to submit to the jurisdiction of the Courts of Budapest having jurisdiction in such matters.

It was held that the abovementioned condition constituted a submission within the meaning of Section 4 of the (English) Arbitration Act, 1889. It is unnecessary to multiply authorities, but I may as well refer to Kirchner & Co. v. Gruban [1909] 1 Ch. 413 which also is to the same effect.

10. The scheme about arbitration in the by-laws of the Association seems to be complete. There is, first, a provision for an award by the arbitrators. In the event of the arbitrators not agreeing, there is a provision for a reference to an umpire, and the decision of the umpire is final subject to an appeal to the board. The by-laws themselves show that what is contemplated is the decision of either the arbitrators or the umpire or the board, and it is this decision which the by-laws expressly call an award which is to be filed in this Court. This is clear from the wording of the second paragraph of sub-clause F of by-law No. 38.

11. It is argued that Section 11 of the Act in terms contemplates an award made only by arbitrators or an umpire, and excludes an award made by the board of directors in appeal from the award of the umpire. Undoubtedly, the section in terms does not apply to the award made on appeal by the board of directors, but if the decision of the board which is called an award under the by-law, which is filed under the Indian Arbitration Act, is the final decision under the submission in accordance with the Act, then, in my opinion, it would be an award made by the arbitrators under the submission between the parties. There is no definition of the term 'arbitrators' or 'umpire', or even of ' arbitration'. There is no doubt that these terms are used in a very wide sense. What is contemplated is that there should be a submission within the meaning of Section 4 of the Act, and a final decision under that submission arrived at by the domestic tribunal in the manner agreed upon between the parties. So long as the tribunal is agreed upon and so long as the method of reaching a final decision is agreed upon in accordance with the submission between the parties, I see no difficulty in holding that the final decision of the domestic tribunal agreed upon under the submission would be the award which could be filed under the Act.

12. It is clear law in England that a reference can be made to a fluctuating body or to a committee of a trade association who appoint certain of their members to act. As an authority for the proposition I may refer to In re Keighley, Maxsted & Co. and Durant & Co. [1893] 1 Q.B. 405 in which the form of the contract and the submission is similar to the present case. The contract in that case contained a clause that all disputes arising out of it should from time to time be referred to two arbitrators who should have power to call in a third, the award of any two of them will be binding and conclusive, with a proviso that in case either party should be dissatisfied with the award, he might appeal to the appeal committee of the London Corn Trade Association subject to the rules of that association. By those rules the appeal committee consisted of twenty-five members, who in each case brought before it had to elect five members from their body, who heard the appeal, and who had to confirm the award appealed against, unless four out of the five concured in reversing or varying it; the award of the appeal committee was then signed by the chairman of the body that heard the appeal, and was to be final and conclusive of the matter in dispute. The rules further provided that in case of death, illness, etc., of any of the five members, the appeal committee shall from time to time elect a new member or members in his or their place. In that case it was argued on behalf of the appellants that there were no arbitrators or umpire within the meaning of Section 10 of the Arbitration Act (52 & 53 Vic. c. 49) of 1889, and that it was a scheme of arbitration not provided for by the Act. The respondents were not called upon, and the argument was completely disregarded, and the correct position was put by Lord Esher M. Rule in this way (p. 407):

I am of opinion that the appeal must be dismissed. The parties are related by a contract of purchase and sale, which is the only contract between them. A dispute arose with reference to that contract, the question at issue being whether the purchasers were bound to accept a quantity of wheat when tendered to them. In the contract the parties had agreed, in case a dispute should arise, to refer it to the arbitration of certain persons (who were, I suppose, members of the corn trade) as arbitrators and under certain conditions; if no objection was taken by either party to the award, it was of course to be final; but if either party wished to take the matter to an umpire, or by way of appeal, as the parties call it, then the umpire was to be the appeal committee of the London Corn Trade Association. The case accordingly went to arbitration, and one of the parties, being dissatisfied with the award, wished the case to go before the umpire. Now, the parties had not only agreed that the committee should be the umpire, but they had agreed that it should act according to the rules of the London Corn Trade Association, which were well known; and when the committee which consisted of twenty-five persons, came to be umpire, they, acting under their rules, exercised their duty by appointing out of their own body a committee of five to act as umpire in the dispute. And it may be noticed here that, by the rules, if one of the five members of the committee died before the matter was finally determined, another member of the body of twenty-five might be appointed in his place.

The submission in Produce Brokers Company, Limited v. Olympia Oil and Cake Co. Limited [1916] 1 A.C. 314 is exactly similar to the submission and the contract between the parties in the present case, and is in these terms (p. 315):

13. All disputes from time to time arising out of this contract including any question of law appearing in the proceedings...shall be referred to arbitration according to the rules endorsed on this contract....

It was never suggested in that case that such a contract and submission were outside the scope of the Arbitration Act of 1889. The question in the case was, whether the arbitrators had jurisdiction to determine the existence of a custom, and Earl Loreburn observed that in his opinion the appeal arbitral committee had jurisdiction finally to find as they did in regard to the custom of the trade, and dealing with this point Lord Sumner observed as follows (p. 332):

Arbitration clauses, substantially the same as that before your Lordships, are characteristic of all these forms of contract. The system has been devised by mercantile men to suit their needs and they have found it highly beneficial; they have been naturally anxious to establish trade control over the transactions of the trade as completely as possible. A construction which would have conferred on the Appeal Committee a true arbitral function as to the interpretation and performance of the printed contract, and a provisional and appealable function over so important a matter as the customs of the trade itself, would have been equally anomalous and inconvenient.

Further, I think, the transaction in question is eminently one with which the established arbitral tribunal is fitted to deal in its entirety.

13. Mr. Coltman argues that the English decisions are no guide on the point as there is a difference between the English Arbitration Act of 1889 and our Indian Arbitration Act of 1899. Under Section 12 of the English Act an award can only be filed in Court with leave obtained from the Court; under our Act no such leave is necessary, and the award can be filed without leave, and on being filed is capable of being executed summarily as a decree of the Court. He further argues that the Indian Arbitration Act does not provide for every kind of eventuality, and relies upon a judgment of this Court in Gopalji Kuverji v. Morarji Jeram I.L.R. (1919) Bom. 809 : 21 Bom. L.R. 308 He concedes that the award made by the board would be a good award, but he contends that it can only be enforced by a suit and not summarily under the Indian Arbitration Act. Apart from special circumstances, there is no reason for supposing that if an award is made by what is called in the cases to which I have referred as an 'appeal committee' or an 'appeal arbitral committee', leave would be refused in England. The real question is, whether there is a submission between the parties within the meaning of the Act followed by arbitration in the manner agreed upon resulting in a final decision. If so, that final decision is an award, and I do not see why it cannot be filed in Court even under the Arbitration Act. In In re Keighley, Maxsted & Co. and Durant & Co. [1893] 1 Q.B. 405 the decision of the appeal committee is described by Lord Esher M.R. as the decision of the umpire and the proceedings before the appeal committee as umpirage, although in that case the award of the arbitrators was unanimous.

14. On this point in India there has been no reported decision in any authorised reports, but exactly the same point arose in Heeralal & Co. v. Joakim and Co. : AIR1927Cal647 In that case, according to the contract between the parties, a dispute was referred, firstly, to arbitrators, then to an umpire, and then to a committee of appeal from him; and the Court held that the award made by the committee of appeal fell within the terms of the Indian Arbitration Act. It is pointed out in that decision that such forms of contract are used in certain trades and the awards made under similar submissions were treated as good and valid awards within the meaning of the Indian Arbitration Act. Reference was made to Chandamull v. Donald Campbell & Co. [1916] 23 C.W.N. 707 and to Surajmull v. Chandmull : AIR1927Cal601 and although the precise question which arises in this case was not raised, such a submission was also before their Lordships of the Privy Council in E.D. Sassoon and Co. v. Ramdutt Ramkissen Das

15. After the argument of counsel in this case were finished and I reserved my judgment, Mr. Setalvad appeared before me and stated that the point involved in this case had come up for decision before our Court. I, thereupon, directed that the matter should be mentioned to me again on notice to the other side, and this was done. Mr. Setalvad produced a copy of the decision of Mr. Justice Kanga in Sukhdev Ramdeo v. Dharamsey Jetha and Co.1 and the decision of the Appeal Court confirming the same. The submission in that case included a term to the effect that the award of the arbitrators or their umpire shall be final and binding subject to a right of appeal to the Cotton Contracts Board. The contract was subject to the rules and regulations of that board. Mr. Justice Kanga dealt with the point in this way:

That contention is that the proceedings which culminated in the award did not fall within the Arbitration Act and that the Arbitration Act does not contemplate any appeal from the unanimous decision of two arbitrators, and, therefore, their petition, which is under the Indian Arbitration Act, should be dismissed on the ground that there is no submission and award, and that the case falls outside the scope of the Indian Arbitration Act. I must say that this argument came upon me as a great surprise, for I am aware of numerous awards of the Cotton Contracts Board which have been entertained by this Court as falling within the Indian Arbitration Act. On carefully examining the argument, it seems to me that there is nothing in it. Section 4 of the Indian Arbitration Act defines a submission as follows:-' Submission means a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not.

16. Now, there is no doubt that the parties may, instead of resorting to ordinary Courts of law, have a domestic forum see Section 28 of the Indian Contract Act.

17. Therefore, if under Section 4 of the Arbitration Act, the letter constitutes a submission, and if according to the terms of that submission the award is made, it cannot be contended that the submission and the award fall outside the scope of the Indian Arbitration Act.

The learned Judge referred to In re Keighley's case in support of the view which he took. In appeal, Shah Ag. C.J. observed as follows:

In the appeal before us the only point urged is that the submission by the parties to arbitration under Rule 51 of the Cotton Contracts Board constituted under the Bombay Act of 1919 is not valid. It is conceded that the award by the arbitrators may be valid but it is contended that the interference by the Board on appeal is not contemplated by the Arbitration Act, and that the award made by the Board on appeal from the decision of the arbitrators is outside the scope of the Act. It is, however, clear from section 6 of the Indian Arbitration Act that it is open to the parties to express their intention at the time of submission to carry out the arbitration on such lines as the parties are willing to agree to. In the present case assuming, without deciding, that the nature of the original contract between the parties as to which the dispute had arisen was outside the class of contracts referred to in Section 2(a) of Act I of 1919, it was open to the parties to agree to an arbitration to be carried out on the lines stated in Rule 51 framed under that Act.

Apart from any decision, I see no difficulty in holding that an award made on the agreement of the parties in that manner is within the scope of the Act. It is as much an award in respect of which the parties can seek relief under the Arbitration Act as an ordinary award made by arbitrators as contemplated by that Act from which there is no appeal to any board as in the present case. This point is covered by the decision of the Court of Appeal in In re Keighley, Maxsted & Co. and Durant & Co. which has been referred to in the judgment of the lower Court. It is a decision under the English statute of 1889, corresponding to the Indian Arbitration Act, and the point that has been argued by Mr. Desai on behalf of the appellants here was raised in that case and disallowed.

It is argued by Mr. Coltman that the observations of Shah Ag. C.J. are obiter dicta. I am not prepared to agree, but, assuming that they are, it seems to me to be clear that although the precise question raised now as to whether an award by the board of directors could be filed under Section 11 of the Act or not was not specifically raised in that case, the Appeal Court found that it was within the Indian Arbitration Act, and that decision is binding on me.

18. The by-laws in this case are statutory. It is 'not contended that the Act or the by-laws are ultra vires, and, obviously, they are not, in view of Section 80A of the Government of India Act. The by-laws being valid and the contract being subject to the by-laws, the scheme of the arbitration provided by the by-laws is binding on the parties, and the

final decision of the domestic tribunal agreed upon would be an award, and, in my opinion, could be filed under Section 11 of the Act.

19. The second ground on which it is argued that the award should be taken off the file is that the award is not signed by all the members of the board who made it. In this case the award is only signed by the chairman. It is argued that the decision of the board can be signed by the chairman only as any other resolution passed by the board of directors. There is no by-law as to how the decision of the board or the resolution made by them are to be signed. In similar cases in England there is a distinct provision as to how such awards should be signed (see In re Keighley's case). Section 11 of the Indian Arbitration Act states that when the arbitrators or the umpire have made an award they shall sign it, and that being so, in my opinion, the award ought to have been signed by all the members of the board who joined in the making of it. But the omission to do so is a mere irregularity as pointed out by Russell on Arbitration and! Award, 12th edn., p. 431, and is capable of being rectified. If necessary, I would have remitted the award for being signed in accordance with Section 11 of the Act; but, in view of the conclusion to which I have come, I do no think it necessary to do so.

20. This brings me to the last and perhaps the most important point in the case. From the facts I have set out above, it is clear that the composition of the board has changed from time to time since the appeal went on before the board, and when the decision was given, clearly some of those who heard the arguments at the earlier meetings were not present and did not form part of the board which made the award. The question, then, is, whether the award or the decision of the board under such circumstances is legal and can be accepted.

21. Section 14 of the Indian Arbitration Act provides that where an arbitrator or umpire has misconducted himself, or an arbitration or an award has been improperly procured, the Court may set aside the award.

22. Mr. Setalvad argues that a reference may be made to a fluctuating body, and relies on Parish of Rathven v. Parish of Elgin (1875) L.R. 2 Scotch App. 535. He further says that under the by-laws the board means the board of directors acting through at least the quorum of their members at the meetings called and duly constituted. There is no by-law which fixes the quorum. But the learned Counsel relies on Article 61 of the articles of association, according to which six directors shall be a quorum for the transaction of the business of the board. As to his first contention, undoubtedly that case is an authority for the proposition that a reference can be made to arbitration to a fluctuating body. But to make a reference to such a body is one thing and how that body is to act and in what manner and what members are to act as arbitrators is another thing, and that question was expressly left open by Lord Cairns, and his observations are as follows (p. 538):

I apprehend that in this country there is nothing whatever which would prevent persons who are minded to refer to arbitration from referring to the arbitration of an incorporated society, consisting of a number of members, or to the members of an incorporated society. How the arbitration so made should he worked out-by what numbers it should be decided-whether at a public meeting, or in what way-is quite a different question, which may be kept distinct from the question of whether such persons can be selected as arbiters.

On this point I may refer to Russell's observations in his book on Arbitration and Award, 12th Edn., at p. 36, which are as follows:

A reference may be to a body or class of persons who may vary from time to time, and the reference will be treated as being to the members of the body or class at the time when the dispute comes up for decision.

As pointed out above in In re Keighley's case, one of the rules of the London Corn Trade Association was to the effect that out of the twenty-five members who formed the appeal committee, five members had to be elected members to hear the appeal. There is no such by-law under the by-laws of the East India Cotton Association, Ltd. Prima facie the parties were entitled to a decision of the board. The board is the tribunal agreed upon. There is no provision for delegating the functions of the board to a particular number of directors. It is true that the board is defined to mean 'the Board of Directors of the East India Cotton Association, Ltd., acting through at least a quorum of their number at a meeting of that Board duly called and constituted'. But there is no by-law which fixes the quorum. It is true that the articles of association provide for six directors acting as quorum. The articles of association, however, are not binding on the petitioner according to the decision of the Appeal Court in Radhakison Gopikison v. Balmukund Ramchandra : (1930)32BOMLR1319 as the petitioner admittedly is not a member of the East India Cotton Association, Ltd. But, assuming that the petitioner knew that six directors formed a quorum, does that mean that different members can sit at the meetings of the board at different times to hear the appeal and give their decision on it? I think not. In my opinion, it would be a mockery of justice to say that A, B and C can partly hear an appeal for one day, C, D and E, partly on the following day, and G, D and H at the third meeting and the latter make their award. And this is what, logically speaking, the respondents have to go to justify their contention. It must be remembered that the board under the submission is a tribunal, although it is a domestic or private tribunal, and it has to act as far as possible judicially. Assuming that the board under the by-laws can act through a quorum, once the particular directors forming the quorum become fixed, I do not think that in the matter of the determination of an appeal a change in the personnel of the quorum is contemplated, at any rate in the absence of a specific by-law to that effect. Once you have a meeting of the board through its quorum to consider the appeal, the board is crystallized as a judicial body for the purposes of appeal.

23. If there is one proposition which is firmly established by authorities more than any other in regard to arbitration, it is this that where there are several arbitrators, all must act together and each must act in the making of the award ; and this is not denied. Indeed Mr. Setalvad concedes it. Every stage of the proceedings must be in the presence of all, and every judicial act to be done by two or more must be completed in the presence of all who do it. In Morgan v. Boult (1863) 11 W.R. 265 the facts were that the umpire and one of the arbitrators in the absence of the other arrived at a decision, though they informed him of it and afforded him an opportunity of objecting thereto before finally and formally making their award. The Court consisting of Cockburn C.J., Crompton and Blackburn JJ. observed as follows:.it would be dangerous to allow an award to stand under such circumstances., It was not a mere communication of the decision, which was sufficient, for it was not easy to eradicate an impression once produced and allowed to sink in the mind. There ought to have been a meeting of all three, for the purpose of mutual discussion of the matter, before arriving at any decision. It was essential to the right exercise of the judicial function by several persons, that there should be this joint consideration and discussion of the matter, before any of them arrived at a decision upon it. In this case the arbitrator of the applicant ought to have been allowed an opportunity of hearing what was urged by the other, and of making any answer to it, and urging any arguments in support of the opposite view before the umpire had formed an opinion upon the question. It would be a most dangerous precedent to allow an award to stand which had virtually been arrived at and resolved on by the umpire on the ex parts statements of one of the arbitrators, in the absence of the other. On that ground, therefore, the award must be set aside....

In Re Plews and Middleton (1845) 6 Q.B. 845 Lord Denman C.J. observed that an award is procured by unfair means if it is arrived at by a departure from natural justice in ascertaining the facts. In that case, ascertaining the facts by one arbitrator apart from the other and by an examination of an interested witness was held to be a departure, not merely from an established course of procedure, but from natural justice. Mr. Justice Coleridge observed (p. 852):

To uphold this award would be to authorize a proceeding contrary to the first principles of justice. The arbitrators here carried on examinations apart from each other, and from the parties to the reference; whereas it ought to have been conducted by the arbitrators and umpire jointly, in presence of the parties.

The observations of Lord Denman C.J. are also to the same effect. In that case what happened was that by arrangement between themselves the joint arbitrators questioned a witness separately and in the absence of the parties. Each then stated the result of his inquiry to the other, and the reports agreeing, they made their award. The Court set aside the award on a motion as procured by undue means, the course pursued being inconsistent with natural justice. In Lord v. Lord (1855) 5 El. & Bl. 404 Coleridge J. observed (p. 406):

It is now clearly established that every judicial act, to be done by two or more, must be completed in the presence of all who did it; for those who are to be affected by it have a right to the united judgment of all up to the very last moment.

In In re Beck and Jackson (1857) 1 C.B. 695 it was held that upon a reference to three arbitrators, or any two of them, an award made by two, in the absence of and without finally consulting the third, cannot be supported. In that case Mr. Justice Cresswell approved of the rules stated by Russell on Arbitration and Award in these words ( p. 700 ):

I find the rule thus stated in Russell on Arbitration, p. 209,-speaking of the duty of joint arbitrators,-'As they must all act, so must they all act together. They must each be present at every meeting; and the witnesses and the parties must be examined in the presence of them all; for, the parties are entitled to have recourse to the arguments, experience, and judgment of each arbitrator at every stage of the proceedings brought to bear on the minds of his fellow-judges, so that by conference they shall mutually assist each other in arriving together at a just decision: Re Flaws and Middleton (1845) 6 Q.B. 845; Little v. Newton (1841) 9 Dowl. P.C. 437 : 2 M. & G. 351 : 2 Scott N.R. 509; Stalworth v. Inns (1844) 13 M. & W. 466 : 2 D. & L. 428

I may also refer to three Indian decisions which were cited by Mr. Coltman. They are also to the same effect : Nand Ram v. Fakir Chand I.L.R. (1885) All. 523 Thammiraju v. Bapiraju I.L.R. (1883) Mad. 313 and Ma Sin v. Ma Pu I.L.R. (1929) Ran. 715

24. Mr. Setalvad relies on the decision in In re Keighley, Maxsted & Co. and Durant & Co. [1893] 1 Q.B. 405 and that part of the judgment which directed that the award should be remitted for further consideration of the appeal committee although one of the members had by that time been dead. It is true that in that case the award was remitted. It must, however, be remembered that in that case there was a distinct rule which was a part of the contract and submission by which such a contingency was provided for, and, under that rule the vacancy could be supplied. But that does not mean that the appeal committee would change its personnel from time to time. It only means that you have a different body to re-hear the whole appeal and finally to dispose of it. Under the rules of the Association, the tribunal was definite and a fixed body. In this case, however, there is no similar rule, and, therefore, in my opinion, this decision is not of much help to Mr. Setalvad. I think, it would be desirable if the East India Cotton Association, Ltd., framed a similar or suitable rule to provide for such a contingency.

25. It is said that hundreds of appeals have been heard in this way by the board of directors, and the respondents rely upon the practice. But, in my opinion, the procedure followed, at any rate in the absence of specific rules, is irregular and contrary to natural justice, and, however well established the usage or practice may be, if it is contrary to natural justice, it cannot be upheld in a Court of law. It is clear law that mercantile usages in the conduct of references cannot be supported if contrary to the principles of natural justice, and this is clear from the decisions to which I have referred. In In re Brook and Delcomyn (1864)16 C.B. 403 it was held that although mercantile arbitrators are not bound by the strict rules of evidence, yet they cannot be permitted to transgress that fundamental principle of justice which declares that no man shall be condemned, either civilly or criminally, without being afforded an opportunity of hearing the evidence adduced against him, and offering his defence. At p. 414 Erle C.J. observed:

I have always a great desire to give effect to mercantile customs, and to the awards of mercantile arbitrators, unless they infringe upon principles of wider importance.

26. Then it is said that the petitioner acquiesced in the proceedings although he knew that the personnel was changing, and, therefore, the irregularity, if any, is waived by him. In the first place, I am not at all satisfied that the petitioner, who is not a member of the Association and is not shown to have been acquainted with the directors, would be ins a position to make out that one or two people who were present at the first meeting were not present at the next, or that one or two other people at the next were not present at the earlier meeting. But, apart from that, however, on the last day he asked for an adjournment. It does not appear why the adjournment was required. The adjournment was refused and then he withdrew. That being so, and having regard to the facts of the case, in my opinion, the respondents have failed in establishing a case for waiver set up by them. Apart from this, I am doubtful that where the proceedings were conducted in the manner in which they have been in this case, it is merely an irregularity which can be waived by a party. The time for objecting really arose on March 17. On that day the petitioner asked for an adjournment. That being refused, he withdrew. It is difficult to see how the question of waiver can arise in these circumstances. In support of his contention, Mr. Setalvad relies on Moseley v. Simpson (1873) L.R. 16 Eq. 226 But in that case the proceedings were commenced de novo, and there was an agreement not to impugn the award on any ground.

27. Lastly, it is submitted that as six directors were present throughout at all the meetings, the award made by the board being the award of the quorum of the board of directors is a good award. As I have pointed out, there is no by-law which fixes the quorum binding on the petitioner. Under the by-laws he is entitled to the benefit of a decision of all the directors acting through a quorum which was not fixed. Mr. Setalvad relies on Beck v. Sargent (1812) 4 Taunt. 232 and contends that if the award made is that of the arbitrators and a stranger joins in it, the award is still good. In that case, however, the award was made by all the arbitrators and the joining of a stranger was held not to affect the validity of it. In this case, there is nothing to show that the persons who were not present at the earlier meetings did not influence the decision, and, in any event, they cannot be said to be strangers, as they were also the members of the board. They were arbitrators just as much as the other six, and some who were present at the earlier meetings were not present at subsequent meetings. It is difficult, therefore, to see how it can be said that the award made in this case is the award of the six members who were present throughout, and not the award of all the members who were present at the final meeting. There is nothing to show that even these six directors agreed upon the award or whether the award is unanimous.

28. I must, therefore, accept the second contention, and set aside the award. The petition must, therefore, be made absolute with costs. Security discharged. Taxed costs as on the original side long cause scale.


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