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Kamani Engineering Corporation Ltd. Vs. Madhya Pradesh Electricity Board and anr. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtMadhya Pradesh High Court
Decided On
Case NumberCivil Revn. No. 453 of 1962
Judge
Reported inAIR1964MP268; 1964MPLJ134
ActsArbitration Act, 1940 - Sections 9 and 34; Limitation Act, 1908 - Sections 5
AppellantKamani Engineering Corporation Ltd.
RespondentMadhya Pradesh Electricity Board and anr.
Appellant AdvocateY.S. Dharmadhikari and ;M.V. Tamaskar, Advs.
Respondent AdvocateB.L. Seth, Adv. for Non-applicant No. 1
DispositionRevision and appeal dismissed
Cases Referred(Kamani Engineering Corporation Limited Bombay v. The M. P. Electricity Board
Excerpt:
.....appointed its arbitrator, they (kamanies) were appointing their arbitrator shri pakvasa as the sole arbitrator under section 9 (b) of the act. 8. on being informed of the appointment as sole arbitrator and in spite of the caution by the board which sent him copies of its letters to the kamanies, shri pakvasa fixed a date in march for the filing of statements by the parties and communicated it to the board as well. it however held that the board had been acting in good faith and if it did not appoint its arbitrator within 15 days from the 27th of january but did so only three days later, i. later on, they give their statements and versions, but the dispute already arises when at least one of the parties clearly insist upon going to arbitration. if indeed it was the intention of the..........of the appointment by the present applicant of his arbitrator shri mangaldas m. pakvasa, as the 'sole arbitrator' in view of the board's default in appointing its arbitrator within 15 days of its notice.2. miscellaneous appeal no. 51 of 1962 (kamani engineering corporation limited bombay v. the m. p. electricity board, jabalpur), which has been heard along with this civil revision, is from the order of the additional district judge, refusing to stay under section 34 of the arbitration act the proceedings under the proviso to section 9 (b) for setting aside the appointment of the sole arbitrator. actually the miscellaneous appeal has not to be separately discussed by me in view of the order that i propose to make in this civil revision. the revision application has been presented and.....
Judgment:

H.R. Krishnan, J.

1. This revision is by Messrs Kamani Engineering Corporation (Kamanies for short), a limited liability company with its head office at Bombay and one of the parties to an arbitration proceedings, the other party being the Madhya Pradesh Electricity Board (Board for short) from the order of the First Additional District Judge, Jabalpur, allowing, subject to payment of special costs Rs. 1,500, the petition filed by the latter for the setting aside under Section 9 (b) proviso, of the Arbitration Act of the appointment by the present applicant of his arbitrator Shri Mangaldas M. Pakvasa, as the 'sole arbitrator' in view of the Board's default in appointing its arbitrator within 15 days of its notice.

2. Miscellaneous Appeal No. 51 of 1962 (Kamani Engineering Corporation Limited Bombay v. The M. P. Electricity Board, Jabalpur), which has been heard along with this civil revision, is from the order of the Additional District Judge, refusing to stay under Section 34 of the Arbitration Act the proceedings under the proviso to Section 9 (b) for setting aside the appointment of the sole arbitrator. Actually the miscellaneous appeal has not to be separately discussed by me in view of the order that I propose to make in this civil revision. The revision application has been presented and opposed at some length by both the parties. But the problems that arise are quite simple. The main problem is whether the Additional District Judge was exercising his discretion properly and with sufficient judicial reasons, when under the proviso to Section 9 (b) of the Arbitration Act he set aside the appointment as sole arbitrator of the arbitrator appointed by the applicant, and whether there are compelling reasons at this stage why this Court in revision should disagree with the Additional District Judge and restore that appointment. On this subject the wording of the proviso is unqualified, and there is practically no case law, probably because of the rarity of such cases.

3. Incidentally, we have to touch upon three other propositions propounded in the alternative by the Board, namely the dispute arose not on 27-1-1962 but only on 5-2-1962; that in terms of the arbitration agreement, the operation of Section 9 (b) was excluded and the party was incompetent to appoint sole arbitrator; and finally, that by writing on 6-2-1962 to the applicant that it has accepted fife invitation to send the matter in dispute for arbitration and was going to appoint the arbitrator by name, the Board had already complied with Section 9 (b) and the communication of the name of arbitrator was only a matter of detail which could be done beyond 15 days limit.

4. The facts-relevant for our purposes are the following. The Kamanies are an engineering concern supplyingelectrical fittings to the Electricity Boards in differentStates. The Board had dealings with them apropos ofwhich they owed money. When by October 1961 the billswere checked up, it was found that there was a veryconsiderable difference between what the former demanded and what the latter was prepared to give. The first wasRs. 11,35,350 while the second was about one-tenth, i.e.,Rs. 1,19,000 (in round figures). Naturally, there was correspondence between the parties in which attempts weremade to verify and clear mistakes and misunderstandingsbut there was no progress. In the course of January 1962we find that the Kamanies were anxious that the difference should go to arbitration; the Board was not againstit in principle but wanted to explore possibilities of anamicable settlement. The attitude of the respective parties is of significance only in regard to the question asto the date on which exactly the dispute did arise. Itwas on the 6th February 1962 according to the Boardand according to the Kamanies not later than 27th January1962, i.e. about 8 days earlier. If and when the disputedid arise it had to go to arbitration in the manner provided in condition No. 34 of the agreement, the patternbeing:

'arbitration of two persons, one to be nominated by the purchaser (Board) and the other by the other party (Kamanies) or failing agreement between the two, to an umpire appointed by them. Such submission shall be deemed to be a submission to arbitration within the meaning of the Indian Arbitration Act, 1899 or any statutory modification thereof. The award of the arbitrators or the umpire shall be final and binding etc. etc.'

5. Accordingly, we find only the Kamanies thinking of arbitration but the Board was anxious to keep it in abeyance for some time. As early as 9-12-1961 the Kamanies were prepared to wait, in their words, 'to give one more ' opportunity for amicable settlement'--

'However, please note that if we do not hear from you in the matter satisfactorily on or before 15-1-1962, we shall be constrained to proceed further in the matter of arbitration.'

'Satisfactory' in this context means satisfactory to the Kamanies. Anyway, the company went on writing to the Board with rising temperature, while the latter for its part still held out hopes of an amicable settlement even after 15-1-1962. In the interval, it also sent to the Kamanies a cheque for Rs. 1,19,000 in round figures, which, however, they refused to accept, obviously fearing that acceptance might have prejudiced a claim on their own terms.

6. At this stage there were two communications, one from each side, which are crucial in this case. On the 20th January 1962 the Board sent to the Kamanies a fully particularised statement showing a break-up of what they were prepared to concede. But while this letter (Ex. P-12) was in transit, the Kamanies sent their ultimatum, namely, Ex. P-13, which was dated 22nd, but was actually posted at Bombay on the 24th and, as the acknowledgment shows, received by the Board on the 27th. In this they stated they are no more prepared to wait and that they had appointed Shri Mangaldas M. Pakvasa as their arbitrator, and called upon the Board to appoint its arbitrator within 15 days from the receipt of the letter. The Kamanies further cautioned in the manner provided kin Section 9 (b):

'In default of such appointment by you, within the aforesaid period we shall be entitled to appoint the arbitrator appointed by us as sole arbitrator.'

It is of interest to note that this contains no reference to the Board's letter of the 20th which the Kamanies state was received by them a few days later and replied to by them in the letter Ex. P-15 dated the 2nd February at Bombay and received by the Board on the 5th February. The Board replied on the 6th (Ex. P-16) to the effect that it was taking note of the Kamanies' insistence on arbitration in spite of the Board's conciliatory letter of the 20th January and was accordingly agreeing to arbitration. It would send the name of its arbitrator in due course after obtaining his consent.

7. Meanwhile, the Kamanies were counting days from the 27th which was the date of the Board's receipt of their ultimatum. On the 12th February they posted a registered letter Ex. P-12 stating clearly that the Board not having appointed its arbitrator, they (Kamanies) were appointing their arbitrator Shri Pakvasa as the sole arbitrator under Section 9 (b) of the Act. This seems to have reached the Board at Jabalpur on the 15th and on the same day, whether before or after the receipt is not clear and is not of any practical consequence, it sent a telegraphic message to the effect that they had appointed Shri V.R. Sen as their arbitrator. This was followed by a frantic exchange of telegrams between the parties and also argumentative letters which are not of such significance to us.

8. On being informed of the appointment as sole arbitrator and in spite of the caution by the Board which sent him copies of its letters to the Kamanies, Shri Pakvasa fixed a date in March for the filing of statements by the parties and communicated it to the Board as well. The Board thereupon filed an application before the Court which has been described in its order as a plaint. The sole arbitrator's proposed entry on the arbitration was stayed. Incidentally it may be noted that there was an appeal by the Kamanies from this, which, however, has become infructuous. In that petition or plaint, the Board took a three-fold stand as already mentioned in the beginning of this order. The Court found against the Board on the issues whether Section 9 (b) had been concluded by the agreement and whether by their letter of the 6th, the Board had complied with that section. It however held that the Board had been acting in good faith and if it did not appoint its arbitrator within 15 days from the 27th of January but did so only three days later, i.e. on the 15th instead of the 12th, the delay could be condoned. It was a fit case for the court's discretion under the provise to Section 9, Arbitration Act. Accordingly, it set aside the Kamanies' appointment of the sole arbitrator. As a matter of detail, it is noted that after the order the arbitrator appointed by the Board was not Shri V.R. San but Shri Tara Chand Shrivastava, who is also a retired Judge of the High Court. This was probably because the former was not available owing to an appointment taken by him in the University of Jabalpur.

9. In the meantime, the Kamanies filed an application under Section 34. According to that the sole arbitrator having already entered on the arbitration, the present application for setting aside the appointment as the sole arbitrator was hit by Section 34. The Additional District Judge not having accepted the contention, the Kamanies have come up in appeal. Their appeal (Misc. Appeal No. 51 of 1962) could be disposed of very briefly. Section 34 is to the effect that, when, independently of the arbitration, in respect of any matter covered by the arbitration agreement, a party to it commences legal proceedings they should be stayed. But where the legal proceedings are themselves under the Arbitration Act and relate to the competency of the appointment, as the case may be, of an arbitrator, sole arbitrator or umpire, there can be no stay under Section 34 for the very simple reason that the legality of such appointment has to be investigated under the Act before the arbitration proceeds at all. This was obvious and it is unnecessary to discuss the matter any further.

10. Ground No. 1 : It is equally unnecessary to investigate the contention put forward by the Board :n the lower court that the dispute had not arisen till the 5th February. On the other hand, the Kamanies have urged, throughout that the dispute had arisen on the date on which the Board received their ultimatum (Ex. P-13). For our purposes 'dispute' is a situation in which the parties differ and have to go to the arbitrators. Later on, they give their statements and versions, but the dispute already arises when at least one of the parties clearly insist upon going to arbitration. In this case between the 20th January and the 5th February the Board was not yet on the war-path and was still hoping that the differences could be amicably settled. On the other hand, the Kamanies. were, on the 24th at any rate, definitely on the war-path, and were not prepared to wait any more, and explore the possibilities of an amicable settlement. We are concerned with the state of mind and not the reasonableness of it or otherwise. As soon as it was communicated to the Board, it was the duty of the Board to take note of the other party's attitude and act accordingly. The dispute for what it is worth did arise on the 24th and the situation created was within the knowledge of the Board on the 27th. It cannot, therefore, be contended that there was no dispute till the 5th.

11. Grounds 2 and 3. It has been urged by the Board that the, terms of the contract exclude the operation of Section 9(b) empowering one of the parties to appoint its arbitrator the sole arbitrator. This is sought to be supported by the wording of the last sentence of condition No. 34 of the agreement that the award of the arbitrators shall be final and binding. It is urged that the condition did not contemplate a situation in which an arbitrator would be giving an award, and, therefore at least by clear implication, arbitration by sole arbitrator has been ruled out. I do not accept this. Words in singular and plural occur indiscriminately in many of the instruments, and simply because the plural is used, it cannot be held that the singular is completely excluded. If indeed it was the intention of the parties that in no event either of them could appoint its arbitrator or as sole arbitrator, the agreement should cite it more clearly than this. It could for example be stated that neither party would be entitled even in case of default by the other to make its arbitrator the sole arbitrator. If that was the condition and arbitrator on behalf of the defaulter would be appointed by the Court. Thus, I would uphold the finding of the lower court that there is nothing in the agreement to exclude the operation of Section 9 (b). Nor am I prepared to accept the contention that by writing the letter of the 6th February, the Board had complied with the requirements of Section 9 (b) of the Arbitration Act. Under that section the party that is noticed by the other and called upon to appoint its arbitrator shall within 15 clear days of the service of the written notice make the appointment of his arbitrator. The letter of the 6th February does not make any appointment because nobody is named as arbitrator. Obviously one cannot appoint somebody who is not named. All that the letter indicates is that the Board has somebody in mind and has asked for his consent and would send on the name after obtaining it.

12. Ground 4 : The crucial issue is whether the lowerCourt was justified in setting aside the appointment cfthe sole arbitrator in these circumstances. The provisoruns thus :

Provided that the Court may set aside any appointment as sole arbitrator made under Clause (b) and either, on sufficient cause being shown, allow further time to the defaulting party to appoint an arbitrator or pass such other as it thinks fit.'

It is significant that no test has been laid for the circumstances in which the appointment is set aside. The reference to 'sufficient cause' later on is only in the matter of appointment of arbitrator by the defaulting party. In the instant case, this had already taken place though in view of subsequent events there was an occasion for a fresh appointment.

13. Another point to note is that the proviso is worded as if it involved no idea of limitation as such. On the other hand, something like that principle is indirectly involved, because an order under the proviso really enables the defaulting party to remedy his failure to make the appointment within 15 days which the Legislature has allowed him for appointing his arbitrator after the receipt of the notice. Looking from this end, therefore, the proviso really enables the Court to condone delay. That way there is a broad analogy between the proviso and Section 5 under which a Court is competent to condone limitation properly so called. But the proviso does not speak of sufficient cause here. All the same we can lay down on the ground of reasonableness and analogy to Section 5 of the Limitation Act and similar provisions that while setting aside the appointment of sole arbitrator, a Court should see whether there is justification on equitable grounds and the setting aside of the appointment is really calculated to promote equity and good conscience.

14. The essence of arbitration is confidence of each of the parties. In fact, an arbitrator derives his authority from this confidence and any step calculating to reduce it is against the spirit of arbitration. Section 9 (b) is an exceptional provision and is in effect a penalty on the defaulting arbitrator (sic. party?)for his failure to make the appointment on getting notice and caution from the other side. If by obstruction, evasion or gross negligence he deserves it, he must be visited with the penalty. But all the same, it is a serious matter. This is obviously why very wide discretion is given to the Court to get aside the appointment. The moment the defaulting party satisfies the Court that he has not been obstructive or evasive and has acted with due diligence, the appointment of sole arbitrator should be set aside. The other party may be entitled to costs to compensate him for any inconvenience resulting from the defaulter's failure to appoint in time. But he cannot try to take an advantage which would be unconscionable except in the three special circumstances already mentioned. Nor need the Court test it by the closeness with which it would test an application for cordonation of delay, and ask for an explanation for the delays of each single day.

15. Applying these principles to the Instant case, it is clear that the Board has not been obstructive or evasive. It has always been ready for the arbitration if it became necessary. However, it did try its best for what it is called an amicable settlement. No doubt, the tone of its letter suggests that it had been somewhat optimistic but optimism about an amicable settlement is not the same as evasion or obstruction. On the 20th January it, was making a last appeal to the Kamanies, Surely the Kamanies were within their rights in refusing to wait any further. But as a fact, this letter crossed the Kamanies' ultimatum of the 24th. The Board was justified even after the receipt of the ultimatum in waiting for a week to see whether the Kamanies were not going to change their attitude after issuing the letter of the 24th. They were not. But then the, Board knew it only on the 5th. The Legislature itself having considered 15 days as the proper period allowed to a party to appoint its arbitrator, the board cannot be charged with negligence even if it had made the appointment on the 20th February. Actually it made it five days earlier.

16. As against this, the attitude of the Kamanies. has not been really fair, though they might argue that they were trying to take only that advantage that the law allowed. Having sent their ultimatum on the 24th and. found that it had reached on the 27th January, they were literally counting days and made the appointment of sole arbitrator on the 12th February. In the interval they had got the letter of the 20th January. They did not agree to the suggestion contained in it. But all the same, it would have been fair on their part to have waited for 15 days, from the date of receipt of their reply to the letter. A principle like the proviso to Section 9 (b) is exactly meant for such situations. Any law is likely to be defective in its operation, because it is impossible to foresee all combination of circumstances. A clever litigant may by insisting upon the letter of the law secure an advantage which in fact is unconscionable. If the law has failed to provide any principle to remedy such a situation, Courts are helpless and have to look on where injustice is done under the letter of the law. But where, as in the instant case, the Legislature has armed the Court to remedy such a situation, it would be failing in its duty if it does not act, subject of course to costs and other equities. In the circumstances of this case not only was the Court right in setting aside the appointment of the sole arbitrator, but it would have grossly failed in. its duty if it had refuse-to act, The consequence would have been that the Kamanies would have stolen a march and had it all their way in a dispute with a stake of ten to eleven lacs of rupees, simply because the Board was waiting to know their reaction to a letter that had crossed their ultimatum.

17. It is argued on behalf of the Kamanies that oven if some condonation was possible, there were still seven days left between the 5th February when the Kamanies' reply was received on the 12th February, the end of 15 days' term after the 27th January. There was no reason why they should not have made the appointment during this period. The answer to this is two-fold. Firstly, this is not a case of limitation properly so called in which every day has to be accounted for. Further, the Legislature having given 15 days for this purpose and the Court having held that the Board could be excused for waiting till the 5th. there is no reason why they should not get time till the 20th.

18. Some case law has been cited but it is in regard either to the circumstances in which an order under Section 9 (b) could be made or the scope of a civil revision generally speaking. On the question we are immediately dealing with, there is really no case law, but the requirements of the principles of justice and good conscience and the scope of the proviso are beyond doubt.

19. In the result, the Civil Revision No. 458 of1962 is dismissed with costs and counsel's fee payableaccording to rules to the respondent No. 1, the MadhyaPradesh Electricity Baord. The Miscellaneous Appeal No.51 of 1962 stands automatically dismissed without anyorder as to costs.


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