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Chhajjumal Sumer Chand and anr. Vs. Firm Sohan Lal Kanhaiya Lal and ors. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberFirst Appeal No. 200D of 1964
Judge
Reported inILR1971Delhi416
ActsArbitration Act, 1940 - Sections 2 and 9
AppellantChhajjumal Sumer Chand and anr.
RespondentFirm Sohan Lal Kanhaiya Lal and ors.
Advocates: A.B. Lal and; C.D. Jain, Advs
Cases ReferredMadhusudan Limited v. Ram Parkash and
Excerpt:
arbitration - jurisdiction - sections 2 and 9 of arbitration act, 1940 - arbitration award set aside on ground of invalid appointment of arbitrator - evidence shows that one partner participated in arbitration proceedings - participation by one partner bind other partners to award passed by arbitrator - arbitrator validly appointed - award wrongly set aside. - - in this application, it is stated that an application under section 20 of the act had been made on 20-7-1964 in the court of the senior subordinate judge, delhi, and that this application was dismissed on 4-1-1965 and an appeal against the order of the learned subordinate judge dismissing the said application was also dismissed by the additional district judge, delhi, by his order dated 15-7-1967. the learned counsel for the..........requires a special authority turn a partner to submit a dispute relating to the business of the firm to arbitration will not be of any help to the 4th respondent because this is not a case where one of the partners of the firm has entered into the arbitration agreement. this is a case where all the partners of the firm including the 4th respondent have entered into the arbitration agreement. (11) the learned counsel for the 4th respondent however contends that the appeliants went to the arbitrator not on the basis of the arbitration clause contained in exs. a.w. 1/1 to a.w. 1/3 but on the basis of me rules of the association and that, thereforee, it is not open to the appellants to invoke the arbitration clause in exs. a.w. 1/1 to a.w. 1/3. in this connection, it is pointed out that.....
Judgment:

M.R.A. Ansari, J.

(1) The appellants herein filed an application before the Subordinate Judge, 1st Class, Delhi, under section 14 of the Arbitration Act (hereinafter referred to as the Act). According to the averments in this application, the appeallants had transactions with the respondents in the purchase and sale of cloth. A sum of Rs. 5,403.59 paise was payable to the appellants by the respondents in respect of these transactions. The respondent committed default in the payment of this amount despite demands being made by the appellants. thereforee, the disputes were referred to the arbitration of the Delhi Hindustani Mercantile Association (hereinafter referred to as the Association) and the Association passed an award dated 25-7-1962 in favor of the appellants for a sum of Rs. 5,403.59 paise plus interest at the rate of 9% per cent per mensern. The appellants, thereforee, wanted that the award made by the arbitrator be filed into Court and that the same be made a rule of the Court.

(2) This application was resisted only by respondent No. 4, Duli Chand. He denied that there were any such transactions between the appellants and the respondents as were alleged by the appellants or that the respondent--firm owed any amount to the appellants as alleged by the latter. He also denied that there was any agreement for referring any disputes to the arbitration of the Assodation. He challenged the jurisdiction of the Association to act as arbitrator or to pass an award.

(3) The following issues were framed by the learned trial Court:-

1. Whether there was any valid agreement of reference executed between the parties? 2. Whether the objection regarding the validity of reference cannot be taken by the respondents? 3. Whether the award has been made by Mercantile Association? 4. Whether the award is liable to be set aside on grounds given in the application?

(4) The learned trial Court found issues Nos. 1 and 3 in favor of the appellants and held that the parties had entered into an arbitration agreement as contained in clause No. 6 in the Beejaks, Exs. A.W.1/1 to A.W.1/3. He also held that the award marked as Ex. A/2 had been in fact made by the Association through Mr. Mohinder Kumar Bansal. He found issue No. 2 in favor of the respondents and held that it would be open to the respondents to object to the validity of the award made by the arbitrator. On issue No. 4, the learned trial Court held that the award was liable to set aside on two grounds, namely,-

(I)that the arbitrator misconducted himself in acting upon the record prepared by another person who was previously acting as the arbitrator; and (ii) that there is only a unilateral reference to the arbitrator by the appellants in which the respondents did not join and thereforee the arbitrator had no jurisdiction to enter upon the reference.

(5) The learned trial Court, thereforee, set aside the award of the arbitrator and dismissed the application filed by the appellants under section 14 of the Act. The appellants have filed the present appeal against the said judgment of the learned trial Court.

(6) A preliminary objection has been raised on behalf of the contesting respondent namely, respondent No. 4, against the maintainability of the appeal. This preliminary objection is contained in the application C.M. No. 1133/71 filed by the 4th respondent. In this application, it is stated that an application under section 20 of the Act had been made on 20-7-1964 in the Court of the Senior Subordinate Judge, Delhi, and that this application was dismissed on 4-1-1965 and an appeal against the order of the learned Subordinate Judge dismissing the said application was also dismissed by the Additional District Judge, Delhi, by his order dated 15-7-1967. The learned counsel for the 4th respondent contends that the present appeal is not maintainable by virtue of the dismissal of the application filed by the appellants under section 20 of the Act, I fail to see how the dismissal of the application under section 20 of the Act would, in any way, affect the maintainability of the present appeal. The application under section 20 of the Act was filed subsequent to the dismissal of the application under section 14 of the Act. The application under section 20 of the Act was for obtaining a different relief from the one which was sought to be obtained by the application under section 14 of the Act. There is a right of appeal against the order of the Subordinate Judge dismissing the application under section 14 of the Act. That right of appeal cannot be said to have been waived by the filing of an application under section 20 of the Act. thereforee, this preliminary objection regarding the maintainability of the appeal has no merit and C.M. No. 1133/71 is dismissed.

(7) I shall now proceed to consider the contentions of the parties in this appeal on merits. The two main questions to be considered in this appeal are-

(I)whether there was an arbitration agreement between the appellants and the respondents which was valid and binding upon the 4th respondent? and (ii) whether there was a valid reference of the dispute between the parties to the arbitrator?

(8) The admitted facts are that respondents Nos. 2 to 4 were at one time partners of the firm which is respondent No. 1 in this appeal. This firm was having transactions in cloth with the firm of the appellants and these transactions were conducted on the basis of the Beejaks similar to Exs. A.W.1/1 to A.W. 1 /3. These Beejaks contained an arbitration clause to the effect that any disputes between the parties to the transactions will be referred to the Association for arbitration. The appellant- firm was a member of this Association but the firm of the respondents was not a member. Respondent No. 4 was writing the Bahi Khata of his firm till 21-5-1959. Ex. A/15 is the letter written by the appellants to the Association referring their disputes with the respondents for the arbitration of the Association. This letter is signed by one of the partners of the appellant-firm and it is not signed by any of the respondents. On receipt of his letter, one Shri Uaneshi Lal was appointed as the arbitrator by the Association, but before he could enter upon the reference or record any evidence, another arbitrator Shri Mohinder Kumar Bansal was appointed as Shri Ganeshi Lal was not available. The notices which had been issued by the Association to the respondents were served on respondents Nos. 2 and 3 and they appeared before the arbitrator and acknowledged the claim of the appellants. The notice issued to the 4th respondent was returned with the endorsement that he had refused to receive it. The 4th respondent did not appear before the arbitrator at any stage. As the other partners of the firm of the respondents did not contest the appellants' claim before the arbitrator, the latter passed his award in favor of the appellant-firm for a sum of Rs. 5,403.59 paise with interest as already stated.

(9) EXS. A.W. 1/1 to A.W. 1/3 are the Beejaks on the basis of which goods are alleged to have been supplied by the appellants Ex. A.W. 1/1 is dated 11-5-1959, Ex. A.W. 1/2 is dated 20-74959 and Ex. A.W. 1/3 is dated 8-5-1959. Although the 4th respondent has denied that his firm had received any goods under these Beejaks, he admitted that the him had been receiving goods from the appellants on the strength of the Beejaks like Ex. A.W. 1/1. He has also admitted that he was writing the Bahi Khata of his firm till 21-5-1959. The transactions covered by Exs. A.W. 1/1 to A.W. 1/3 are entered into the account books of the respondent-firm. All these entries are in the handwriting of the 4th respondent. thereforee, so tar as Ex. A.W. 1/1 and Ex. A.W. 1/3 are concerned, the 4th respondent must be presumed to have knowledge of these transactions. Even as regards Ex. A.W. 1/2 which is dated 20-7-1959, the only reason given by the 4th respondent for denying knowledge of this transaction is that he had retired from the partnership on 21-5-1959. There is, however, no satisfactory evidence in support of this plea that he retired from the partnership on 21-5-1959. According to the 4th respondent a dissolution deed had been written on that date, but no such document has been produced by him. His Explanationn that only one copy was prepared and that copy was given to one of the other partners, namely, Shri Kanhaiya Lal cannot be accepted. thereforee, the 4th respondent must be deemed to be a consenting party to the transactions covered by all the three Beejaks Exs. A.W. 1/1 to A.W. 1/3.

(10) It is no doubt true that these Beejaks are not signed by any of the respondents. For the matter of that, they are not even signed by the partners of the appellant firm. But these Beejaks contained an arbitration clause and thereforee, these Beejaks will amount to an arbitration agreement within the meaning of section 2(a) of the Act notwithstanding the fact that they are not signed by any of the parties. All that section 2(a) of the Act requires is that the agreement should be reduced to writing. If, thereforee, the 4th respondent was a partner of the firm on the date of these transactions and if he was a consenting party to these transactions, it would mean that he was also a party to the arbitration agreement. Section 19(2) of the Partnership Act which requires a special authority turn a partner to submit a dispute relating to the business of the firm to arbitration will not be of any help to the 4th respondent because this is not a case where one of the partners of the firm has entered into the arbitration agreement. This is a case where all the partners of the firm including the 4th respondent have entered into the arbitration agreement.

(11) The learned counsel for the 4th respondent however contends that the appeliants went to the arbitrator not on the basis of the arbitration clause contained in Exs. A.W. 1/1 to A.W. 1/3 but on the basis of me rules of the Association and that, thereforee, it is not open to the appellants to invoke the arbitration clause in Exs. A.W. 1/1 to A.W. 1/3. In this connection, It is pointed out that in the letter bx. l/15 written by the appellants to the Association, there is no reference to the arbitration Clause in the Beejaks ana that the reference, on the other hand, is to the rules oi the Association. It is again pointed out that even in cue application hide by the appellants under section 14 of the Act, there is no reference to the arbitration agreement contained in the Beejaks, but reference is made only to the rules to the Association. It is no doubt true that there is no specific reference either in Ex. A/15 or in the application under section 14 of the Act to the Beejaks Exs. A.W. 1 /1 to A.W. 1/3. But the absence of a specific reference to these Beejaks does not necessarily justify the inference that the appellants went to the arbitrator only on the basis of the rules of the Association and not on the basis of the arbitration clause' in the Beejaks. these Beejaks were hide before the arbitrator and the claim of the appellants against the respondents was in respect to the transactions covered by these Beejaks. Even in the court below, both the parties adduced evidence in this regard. They did so on the assumption that the Beejaks, Exs. A.W. 1/1 to A.W. 1/3 represented the arbitration agreement. There is no indication from the evidence adduced by the parties that apart from these Beejaks, the parties depended upon any other documents as representing the arbitration agreement. Even the 4th respondent did not suggest in his evidence that the reference to the arbitrator was on the basis to any document other than these Beejaks. The contention urged on behalf of the 4th respondent namely, that the reference to the arbitration was under the rules of the Association and not on the basis of the Beejaks, clearly appears to be an afterthought. It must, thereforee, be held that there was a valid arbitration agreement between the appellants and the respondents.

(12) But the existence of a valid arbitration agreement is One thing and a valid reference to the arbitrator is another thing. It is now well-settled that even if there is a valid arbitration agreement, both the parties to the agreement should join in the reference to the arbitrator and that a unilateral reference only by one of the parties does not give jurisdiction to the arbitrator to enter upon the reference. Reference need be made only to the two decisions, namely,

(I)Thawardas v. Union of India, and : [1955]2SCR48 . (ii) Madhusudan Limited v.Ram Parkash and another 1966 (2) D.L.T. 123.

(13) Where both the parties to the arbitration agreement do not agree to submit their disputes to arbitration, then, the only way of having the disputes referred to arbitration is by filling an application under section 20 of the Act. The question is whether the arbitrator gets jurisdiction to enter upon the reference when one of the parties who did not join in the reference in the initial stage, however, submits to the jurisdiction of the arbitrator and participates in the arbitration proceedings. H. R. Khanna, J., (as he then was) had an occasion to consider this question in Dewan Amolak Singh v. Shri Lajpat, 1966 (2) D.L.T. 100. In that case, a reference was made to the arbitrator by only one of the parties to the dispute and the arbitrator entered upon this reference and issued notice to the other party intimating him that he had entered upon the reference. The other party thereupon appeared before the arbitrator and participated in the arbitration proceedings. Upon the evidence adduced by both the parties, the arbitrator gave his award. The party who had not joined in the reference to the arbitrator in the first instance but who had appeared before him in response to the notice issued by the arbitrator and who had participated in the arbitration proceedings, then field his objection to the award and one of the objections taken by him was that the arbitrator had no jurisdiction to pass the award upon a unilateral reference by only one of the parties to the arbitration proceedings. Reliance was sought to be placed upon the decision of the Supreme Court in Thawardas Pherumal and another v. Union of lndia as well as on the decision of the Punjab High Court in Madhusudan Limited v. Ram Parkash and another referred to supra. Negativing the contention, his Lordship made the following observations

'IN my opinion, the appellant can derive no assistance from the above mentioned observations, for in the present case the appellant submitted to the jurisdiction of the arbitrator. The appellant made statement before the arbitrator and sought reduction of the amount which was claimed from him on the ground that he had made certain payments to the respondent. The appellant having submitted to the jurisdiction of the arbitrator and having taken a chance of getting a decision in his favor cannot now urge that the reference to the arbitrator was not valid because of its having been unilaterally made on behalf of the respondent. The necessity of resort to section 20 of the Arbitration Act and of avoiding unilateral reference to arbitration arises, according to the view expressed in the cases of Thawardas Pherumal and Madhu Sudan (supra), where one of the parties is recalcitrant and refuses to submit itself to the jurisdiction of the arbitrator. Where, however, an arbitrator is named by both the parties to the dispute and they both submit to his jurisdiction and take part in the proceedings before the arbitrator thus availing of the chance to have a decision in their favor, the award given by the arbitrator cannot be held to be invalid and set aside on the ground that he entered on the reference on having been moved by only one of them.'

(14) I am in respectful agreement with these observations. If in this case it is found that the respondents had submitted to the jurisdiction of the arbitrator and had taken part in the arbitration proceedings, then. the award of the arbitrator would be binding upon the respondents notwithstanding the fact that the arbitrator had entered upon the reference only on the letter of the appellants. thereforee, the question to be considered is whether the respondents had in this case. submitted to the jurisdiction of the arbitrator and participated in the arbitration proceedings.

(15) As already stated, respondents Nos. 2 and 3 participated in the arbitration proceedings and the 4th respondent did not participate in the proceedings. As a matter of fact, the arbitrator treated the 4th respondent as being ex parte. The fact that the 4th respondent declined to receive the notice issued by the arbitrator and did not participate in the arbitration proceedings and at the first opportunity that he got for challenging the award, namely, when a notice was issued by the Court after the award was filed by the arbitrator, the 4th respondent had challenged the jurisdiction of the arbitrator, would justify the inference that so far as the 4th respondent was concerned, he did not submit to the jurisdiction of the arbitrator. The question would be how far the participation of the other partners of the firm in the arbitration proceedings affected the position of the 4th respondent. Section 32(3) of the Partnership Act is in the following terms: -

'(3)Notwithstanding the retirement of a partner from a firm, he and the partners continue to be liable as partners to third parties for any act done by any of them which would have been an act of the firm if done before the retirement, until public notice is given of the retirement; Provided that a retired partner is not liable to any third party who deals with the firm without knowing that he was a partner.'

(16) According to the 4th respondent he had retired from the partnership on 21-5-1959, but there is no documentary evidence in support of the alleged retirement. The 4th respondent however, seeks to rely upon the admissions made by one of the other partners of the' firm, namely, Kanhaiya Lal, who has been examined in the lower Court as A.W. I, to the effect that the partnership business had been closed since 21 years. Kanhaiya Lal was examined on 21-5-1963. The 4th respondent also relies upon the admissions made by one of the partners of the appellant firm, namely, Sumer Chand, who has been examined as A.W. 5 in the lower Court, to the effect that the firm of the respondents was not. doing any business for the last 2 or 2 1/2 years. Sumer Chand was examined on 22-2-1964. The 4th respondent seeks to rely upon these admissions in support of his contention that he had retired from the partnership on 21-5-1959 but the alleged admissions made by Kanhaiya Lal and Sumer Chand do not necessarily imply either that the partnership of the respondents had been dissolved or that the 4th respondent had retired from the partnership. Even assuming for a moment that the 4th respondent had retired from the partnership and was no longer a partner of the firm on the date on which the appellants made a reference to the arbitrator, section 32(3) of the Partnership Act creates a legal fiction that the partnership continued to be in existence so far as the liability of the partners with a third party was concerned. If the partnership is thus deemed to be in existence on the date the' reference was made to the arbitrator and also during the arbitration proceedings, then, the act of one of the partners, namely, Kanhaiya Lal. in submitting to the jurisdiction of the arbitrator and in participating in the arbitration proceedings, would be binding upon the 4th respondent. If once it is found that the firm of the respondents had entered into an arbitration agreement with the appellants, then, it is not open to any one of the partners of the firm to repudiate the arbitration agreement or to refuse to submit to the jurisdiction of the arbitrator. Any one of the partners who submits to the jurisdiction of the arbitrator and participates in the arbitration proceedings would be doing so on behalf of the other partners of the firm and the other partners would be bound by the act of the partner who participated in the arbitration proceedings. thereforee, notwithstanding the fact that the 4th respondent did not himself submit to the jurisdiction of the arbitrator nor participated in the arbitration proceedings, he would still be bound by the' award of the arbitrator and it is not open to him to repudiate the award on the ground that he himself had not submitted to the jurisdiction of the arbitrator.

(17) The learned lower Court was, thereforee, wrong in setting aside the award of the arbitrator on the ground that the arbitrator had no jurisdiction. The other ground on which the award has been set aside by the learned lower Court is equally untenable. The learned lowest Court has proceeded on a mistaken assumption that the arbitrator who passed the award A had acted upon the evidence which had been recorded by his predecessor which is wrong. I find from the record that the notices to the appellants and the respondents were issued by the Association. Although on these notices the name of Shri Ganeshi Lal, was mentioned as the arbitrator, yet the said arbitrator, actually did not enter upon the reference because he was not available and it was Shri Mohinder Kumar who actually entered upon the reference. All the evidence was recorded only by him and the award also was passed by him The question whether an arbitrator could make an award on the basis of the evidence which was not recorded by him but which was recorded by his predecessor does not arise. In the present case the entire evidence has been recorded only by the arbitrator who passed the award. There is no infirmity in the award on that score.

(18) As already stated, the other issues framed by the learned lower Court were found in favor of the appellants and no arguments have been addressed before me on these issues by the learned counsel for the 4th respondent. thereforee, the judgment of the learned lower Court is set aside. The objections of the 4th respondent are over-ruled and the award is made a rule of the Court.

(19) In the result, the appeal is allowed; but there shall be no order as to costs.


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