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The Industrial Gases Ltd. Vs. the Ganesh Flour Mills Co., Ltd. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtAllahabad High Court
Decided On
Case NumberF.A.F.O. No. 172 of 1964
Judge
Reported inAIR1971All428
ActsArbitration Act, 1940
AppellantThe Industrial Gases Ltd.
RespondentThe Ganesh Flour Mills Co., Ltd.
Appellant AdvocateS.N. Kacker and ;Shri Dhar, Advs.
Respondent AdvocateKrishna Sahai, Adv.
DispositionAppeal allowed
Excerpt:
.....act, 1940 - entering upon reference is not an award - arbitrator differs - umpire enter upon reference - hear parties, hear witness - umpire act as sarpanch - his award ought to be set aside. - - a claim was also made for the value of the building material which, bad been left behind when the premises were vacated by the appellant-company. air 1955 nag 126 the distinction between a sarpanch and an umpire has been clearly drawn out. in any event, we are quite satisfied that nagarmal's position was so vague as to leave it open to him to act either as an umpire or as an arbitrator or as a sarpanch at his sweet will and such a reference cannot be regarded in law as proper. considering the nature of the controversy, it would be open to the parries to reconsider the question whether..........to have the case decided by the court, the learned civil judge will proceed to do so. in case the parties want the matter to be decided by arbitration, the learned civil judge will send the case back to sri narendrajit singh, umpire, who will give an award after following the correct procedure. parties will bear their own costs. the stay order is vacated.
Judgment:

S.K. Verma, J.

1. This is a defendant's first appeal from order under Section 39 of the Arbitration Act.

2. The respondent-company filed a suit against the appellant-company for the recovery of a sum of Rs. 38,659.25 P. as rent of certain buildings used by the defendant. They also claimed the price of current consumed and the price of oxygen supplied. The suit was defended by the defendant on various grounds which need not be enumerated. Suffice it to say that the appellant-company made a counter claim on the allegation that the respondent-company had been overpaid. A claim was also made for the value of the building material which, bad been left behind when the premises were vacated by the appellant-company. After issues had been framed in the case, the dispute was referred to three arbitrators, namely, Sri Narendraiit Singh, Bar-at-Law, Sri Ganpat Sahai, Chief Engineer of the respondent-company and Sri H. S, Ramaswami, Chief Engineer of the appellant-company. Of these Sri Narendrajit Singh was to be umpire. The arbitrators took a long time over the arbitration and took repeated extensions for giving the award. Eventually arguments were heard on May 10, 1963. Sri Ganpat Sahai and Sri H. S. Ramaswami gave differing awards on May 14, 1963. Thereupon the umpire Sri Narendrajit Singh gave his award on May 15, 1963.

3. Against this award, both parties filed objections. These objections were heard by the learned Third Additional Civil Judge of Kanpur. He allowed the objections filed by the respondent-company. Most of the objections filed by the appellant-company were, however with slight modifications, rejected, The defendant-company has come up in appeal to this Court.

4. Apart from the other arguments that Mr. Kacker has raised, his main contention, which goes to the root of the matter, is that the award is vitiated and must be set aside because Sri Narendrajit Singh never really entered upon the reference as umpire. The record of the arbitration proceedings shows that all the three arbitrators sat together. Witnesses were examined, documents were produced and arguments were heard by all of them. Sri Ganpat Sahai and Sir H. S. Ramaswami gave their differing awards on May 14, 1963 and Sri Narendrajit Singh gave his award the very next day, that is to say on May 15, 1963. When the two arbitrators differed, Sri Narendrajit Singh, the umpire, instead of proceeding to give his award forthwith, should have entered upon the reference, that is to say, he should have given notice to the parties so that they would have had an opportunity of making any other submissions that they desired in view of the difference of opinion between the two arbitrators mentioned above. I should not be understood to mean that Sri Narendrajit Singh could not act upon the evidence that was led and the arguments that were advanced before him and the other two arbitrators. He could have done so validly provided the parties had been given an opportunity of raising objections. In case they did not object, Sri Narendrajit 'Singh could have acted as he did.

According to Russell on the Law of Arbitration, Fifteenth Edition, an umpire is not merely a third arbitrator. I find this in Russell:

'An umpire is a person appointed to take over the reference from arbitrators who are unable to agree amongst themselves. In general, he is in the same position as a sole arbitrator. ...........'

Another passage in the same book, which is relevant, is:

'The powers and duties of an umpire, when he is called upon to act, are in general the same as those of the arbitrators.

The umpire must hear the evidence of the parties and their witnesses, if application is made to him to do so by either party, notwithstanding that the same evidence has already been adduced before the arbitrators. The umpire is not justified, in the face of an objection by either party, in taking any part of the evidence from the notes of the arbitrators, unless there are special provisions in the submission permitting him to do so. 'I do not see that you can carry the proposition, attempted to be laid down in support of the award, any further than this, that an umpire may make his award on the notes of the arbitrators, if no objection is taken.' (Per Pattersou, J. in Re Jenkins (1841) 11 LJQB 71). 'There was no necessity for the umpire to hear the evidence. If it was necessary, for the justice of the case, that he should personally have heard the witnesses, and application had been made to him for that purpose, he would not have been justified in refusing to hear them; but here no application was made to or refusal given by the umpire in his character of umpire to hear evidence; at the time when the application was made he was appointed to that office in case the arbitrators should disagree, but was not acting as such.' (Per Denman, C. J., in In re, Tunno and Bird, (1833) 3 LJKB 1 at 6).'

5. In Halsbury's Laws of England, Simonds Edition, paragraphs 79 and 80 are relevant:

'79. UMPIRE. Where the reference is to two arbitrators or an umpire, the powers of the umpire do not arise unless and until the arbitrators are unable to agree, or allow their time for making an award to expire: but in practice the umpire usually sits with the arbitrators from the commencement of the reference, since, unless he did so, he would have to hear all the evidence repeated before him. The umpire, if and when required to make an award, is substituted for and has the same powers with regard to the conduct of the arbitration as the arbitrator possessed. The umpire may also take into account the arbitrator's expert opinion.'

80. CONDUCT OF PROCEEDINGS. In the conduct of the proceedings the arbitrator or umpire must conform to any directions which may be contained in the agreement of reference itself. Subject to any such directions, he should observe, so far as may be practicable, the rules which prevail at the trial of an action in court: but he may deviate from those rules provided that in so doing he does not disregard the substance of justice. Thus, the arbitrator is bound by the rules of evidence, and although the parties may agree that the rules of evidence as observed in the courts shall not be strictly followed, he must not admit and act upon, evidence which is obviously inadmissible, and which goes to the root of the question which he has to decide.'

6. There is a difference between an umpire and a sarpanch. A sarpanch is only a chairman of a committee of three. In Chouthmal Jivrajjee Poddar v. Ramchandra Jiyarajjee Poddar. AIR 1955 Nag 126 the distinction between a sarpanch and an umpire has been clearly drawn out. The relevant observations are reproduced below:

'The law on the subject is to be found in Halsbury's Laws of England, Simond's Edition, Volume 2, page 31, para 68. The word 'umpire' is a term of art and has a special meaning in the law relating to arbitrations. The agreement was scribed by a lawyer who evidently understood what an umpire's functions are in arbitrations. An umpire may be appointed by the selected arbitrators or the appointment may be made by the contending parties. The umpire only acts when there is a difference between the arbitrators themselves. He may sit with the arbitrators and watch the proceedings, hear the evidence and look into the papers, but he is not supposed to confer with the arbitrators so as to mould their decision.

A sarpanch is a panch but has a position akin to a chairman. In our opinion, Nagarmal was appointed an umpire and his position was correctly understood by the parties and by the arbitrators, including Nagarmal. If Nagarmal acted before there was a difference, this would constitute an illegality, though there was no objection to his sitting with the arbitrators. He could not influence their opinion. See Winteringham v. Robertson' (1858) 27 LJ Ex. 301 at page 303 (S). If Nagarmal was an arbitrator, he was not an umpire and the reference itself would he defective since it names him as such. In any event, we are quite satisfied that Nagarmal's position was so vague as to leave it open to him to act either as an umpire or as an arbitrator or as a Sarpanch at his sweet will and such a reference cannot be regarded in law as proper. We accordingly hold that the reference was invalid for this reason.'

7. The position in law seems to be this. If, in the' reference, the position of the third person, that is to say, the person other than the two arbitrators, is vague so that he could act either as an arbitrator or as a Sarpanch, the reference itself would be invalid. On the other hand, if the third person is clearly and, without any ambiguity, nominated as an umpire but he acts only as a Sarpanch, the reference would be valid but the award would be bad and it would have to be set aside. I have scrutinized the application (paper No. 115C) made by the parties for reference of the dispute to arbitration, and also the order of the learned Civil Judge passed thereon, and I am of the view that Sri Narendrajit Singh, without any doubt, was nominated as an umpire and he could act only in that capacity.

Throughout the proceedings, however, he appears to have acted as Sarpanch or chairman as is obvious from the record. He consulted the notes of the other arbitrators and he made notes himself which were made available to the other two arbitrators. He seems to have thought that, without doing anything further, as soon as the other two arbitrators differed, he could proceed to give his own award without giving an opportunity to the parties to say anything further. Clause (4) of the First Schedule of the Arbitration Act reads as follows:

'If the arbitrators have allowed their time to expire without making an award or have delivered to any party to the arbitration agreement 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.'

The words 'enter on the reference' cannot possibly mean 'proceed to give an award' and, yet this is exactly what Sri Narendrajit Singh did. In Sardar Mal Hardat Rai v. Sheo Baksh Rai Sri Narain, AIR 1922 All 106, a Division Bench of this Court quoted the following from an English decision with approval:

'Entering upon the reference' means not when an arbitrator accepts the office, or takes upon himself the duty but when he actually enters upon the matter of the reference, when the parties are before him, or under some peremptory order compelling him to conclude the hearing ex parte/ I am, therefore, of the view that the award should have been set aside in its entirety.

8. I, therefore, allow this appeal, set aside the order of the learned III Additional Civil Judge of Kanpur and also the award given by Sri Narendrajit Singh. The case is sent back to the learned Civil Judge. Considering the nature of the controversy, it would be open to the parries to reconsider the question whether they would like to have the dispute settled through arbitration or by the Court. In case they choose to have the case decided by the Court, the learned Civil Judge will proceed to do so. In case the parties want the matter to be decided by arbitration, the learned Civil Judge will send the case back to Sri Narendrajit Singh, umpire, who will give an award after following the correct procedure. Parties will bear their own costs. The stay order is vacated.


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