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Chandra Financiers (P) Ltd. Vs. Gurcharan Singh and anr. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberCivil Revision Appeal No. 53D of 1966
Judge
Reported inILR1972Delhi589
ActsArbitration Act, 1940 - Sections A2
AppellantChandra Financiers (P) Ltd.
RespondentGurcharan Singh and anr.
Advocates: D.N. Bhasin and; S.C. Jain, Advs
Cases ReferredP. C. Aggarwal v. Banarsi Lal Kotiya
Excerpt:
.....a contract between the parties contains what may be called an arbitration clause to refer future disputes to arbitration, the agreement is merely an agreement to submit future differences to arbitration within the meaning of section 2(a) of the arbitration act. if disputes arise in the future, a reference has to be made to arbitration within the meaning of section 2(e) of the arbitration act and at this stage there should be a consent of both the parties. a unilateral reference to arbitration would, thereforee, be invalid.; (rejecting the contention of the counsel for the petitioner-owners that clause 26(b) of the hire-purchase agreement in this case contains the consent of the hirer and the guarantor given in advance in respect of the future disputes or questions and matters of..........made his award on 1st november, 1965, and gave intimation thereof to the parties. by that award, the arbitrator awarded a sum of rs. 5910.00 in favor of the owners recoverable from the hirer and the guarantor. the owners filed an application under sections 14 and 17 of the indian arbitration act 10 of 1940 praying for a direction to the arbitrator to file the award, and for making !it a rule of the court. accordingly, a direction was given to the arbitrator, and he filed the award. (5) on 20th february, 1963, the hirer and the guarantor filed objections praying that the award be set aside on the grounds, inter alia,that no notice was served on them in the proceedings, that the arbitrator acted illegally in taking ex parte proceedings against them, that the hire purchase.....
Judgment:

T.V.R. Tatachari, J.

(1) This civil revision has been filed by M/s. Chandra Financiers (P) Ltd. against an order of Shri M. L. Jain, Additional District Judge, Delhi, dated 4th October, 1965, reversing an order of Shri H. S. Bakshi, Subordinate Judge, dated 8th February, 1965, and setting aside an award made by a sole arbitrator.

(2) The parties, viz. Lachman Singh (hereinafter referred to as the 'Hirer') and Gurcharan Singh (hereinafter referred to as the 'Guarantor') on the one hand and M/s Chandra Financiers (P) Ltd. (hereinafter referred to as the 'owners') on the other, entered into a hire-purchase agreement, dated 28th April, 1960, relating to a T.M.B truck supplied by the latter to the former.

(3) The said agreement contained an arbitration clause which reads as follows:-

'26(A)This Agreement is agreed to have been accepted and performed in Delhi, which is the Head Office of the owners and all matters, disputes arising out of and in connection with this Agreement are to be settled by the parties hereto in Delhi and any legal proceedings in respect of any claims, matters or disputes on any account whatsoever shall be instituted in Delhi and tried by the Delhi Courts alone. Nothing in this clause shall, however, effect or lessen the rights as to arbitration as provided for in the succeeding subclause (b). (b) All questions and matters of difference between the Parties hereto or their representatives touching the constructions hereof or any act or thing in regard to the rights, duties and .obligations or their enforcement or performance including the failure to pay the claim under the several hereinbefore recited clauses and or arising out of or relating to this agreement or to the subject-matter hereof shall, at the owners' discretion, be referred to the sole arbitration of Shri Chet Ram Mittal, Advocate, Delhi, or his nominees for arbitration in accordance with the Indian Arbitration Act 1940. In such case the party raising the question or matter in difference shall give 10 days' notice thereof to the other party or parties and to the arbitrator addressed to his or their usual last notified address and the notice shall be deemed to have been served when it would have been delivered' ordinarily and the party raising the question or matter shall deposit Rs. 50.00 as arbitration fees with the Arbitrator. Costs shall be in the discretion of the arbitrator. The award thus obtained shall be final and binding on all the parties concerned.'

(4) Certain disputes appear to have arisen between the parties and the owners referred the matters in dispute to the sole arbitrator mentioned in the agreement The arbitrator made his award on 1st November, 1965, and gave intimation thereof to the parties. By that award, the arbitrator awarded a sum of Rs. 5910.00 in favor of the owners recoverable from the Hirer and the Guarantor. The owners filed an application under sections 14 and 17 of the Indian Arbitration Act 10 of 1940 praying for a direction to the arbitrator to file the award, and for making !it a rule of the Court. Accordingly, a direction was given to the arbitrator, and he filed the award.

(5) On 20th February, 1963, the Hirer and the Guarantor filed objections praying that the award be set aside on the grounds, inter alia,that no notice was served on them in the proceedings, that the arbitrator acted illegally in taking ex parte proceedings against them, that the Hire purchase agreement was a bogus document as the truck was not given to them by the owners, and that the arbitrator did not make a full inquiry and the whole proceedings of the arbitrator were void from the beginning to the end.

(6) The owners controverter the said objections. When the case was at the stage of evidence, the Hirer and the Guarantor tiled an application on 20th January, 1965, stating that the reference made by the owners was unilateral and was thus invalid, that consequently the arbitrator had no jurisdiction to conduct the arbitration proceedings and make an award, that the award was, thereforee, liable to be set aside on that ground alone, and that the said question be decided first. The application was resisted by the owners, and a preliminary objection was taken by them that since no such plea questioning the validity of the award was raised in their objections, the applicants could not be permitted fo raise that point by making a separate application. It was contended on behalf of the applicants that the aforesaid plea was covered by the concluding paragraph on page 2 of the objection petition which runs as under: -

'THE arbitrator who is a lawyer did not make full enquiries and if he had made full enquiries it would have been quite clear to him that M/s. Chandra Financiers had nothing to do with the truck in question. The whole proceedings of the arbitrator are void from beginning to end.'

(7) By his order, dated 8th February, 1965, the learned Sub-ordinate Judge held that the aforesaid paragraph did not cover the plea regarding the validity of the reference on the ground of its being unilateral, and that the said plea could not be allowed to be raised at that stage since all objections challenging an award must be raised within the period prescribed under Article 158 of the Limitation Act. In that view, the learned Subordinated Judge rejected the application.

(8) Against that order, the Hirer and the Guarantor preferred an appeal, M. C. Appeal No. 229 of 1965, to the Court of Shri M. L. Jain, Additional District Judge, Delhi. The learned Additional District Judge, by his judgment, dated 4th October, 1965, held that as held in Lal Chand v. Gopi Chand 1963 P.L.R. 809 an application for setting aside an award must be made within the prescribed time, that an objector cannot avail of a ground of fact if it had not been taken by him expressly in his objections, but that he can take advantage of any legal ground at any stage if the award had been attacked by him on a general ground that it is invalid and void legally. The learned Additional District Judge also held that in the present case, the Hirer and the Guarantor did take the objection that the whole proceedings before the arbitrator were void from the beginning, and the same included the plea of the invalidity of the reference on account of its being unilateral, and that the said plea could not be disallowed as being out of time as was done by the learned Subordinate Judge. The learned Additional District Judge, relying upon the decisions in Thawardas Pherumal and another v. Union of India, : [1955]2SCR48 and in Om Prakash v. Union of India, : AIR1963All242 , and observing that the decision in Mis. Shri Vallabh Pittee v. Narsingdas Govindram Kalani, : AIR1963Bom157 , did not correctly interpret the decision of the Supreme Court, held that the unilateral reference made by the owners was invalid and consequently the award also was invalid and liable to be set aside. In that view, the learned Additional District Judge allowed the appeal, set aside the order of the trial Court, and set aside the award made by the sole arbitrator. It is against that appellate judgment that the present civil revision has been filed by the owners.

(9) Shri Dina Nath Bhasin, learned counsel for the petitioners- owners, contended firstly that the order of the trial Court, dated 8th February, 1965, was only an interim order and, as such, was not appealable, and that the Additional District Judge had, thereforee, no jurisdiction to entertain the appeal. In answer to the said contention, Shri S. C. Jain, learned counsel for the respondents, pointed out that the said objection was not raised before the learned Additional District Judge, and should not, thereforee, be allowed to be raised in this Revision, and that in any case the order of the trial Court was appealable under section 39(l)(vi) of the Arbitration Act, 1940 : It is true that the objection was not raised before the lower appellate Court. But, the objection relates to the jurisdiction of the Additional District the petitioners to raise that objection in this Revision for the first time. As regards the merits of the objection, reference has to be made to the provision in section 39(l)(vi). The said provision is that an appeal shall lie, inter alia, from an order passed under the Act 'setting aside or refusing to set aside an award' to the Court authorised by law to hear appeals from original decrees of the Court passing the order. The question, thereforee, is whether the order passed by the trial Court on 8th February, 1965, in the application filed by the Hirer and. the Guarantor was an order setting aside or refusing to set aside the award within the meaning of section 39(l)(vi). The application was filed on 20th January, 1965 by the Hirer and the Guarantor stating that the reference to the arbitrator was made by the owners only and not by them, that such an unilateral reference was illegal and the award made in pursuance of such invalid reference could not be made a Rule of the Court, and that the award may be rejected on that short ground. By his order, dated 8th February, 1965, the learned Subordinate Judge rejected the said application. In other words, the Hirer and the Guarantor prayed for the setting aside of the award on the aforesaid ground of the reference to the arbitrator being itself illegal, and the learned Subordinate Judge refused to do so and rejected the application. The said rejection of the application clearly amounted to a refusal to set aside the award, and his order, thereforee, was covered by section 39(l)(vi) of the Arbitration Act. It has, thereforee, to be held that the appeal filed in the Court of the Additional District Judge was maintainable, and the contention of Shri Bhasin cannot be accepted.

(10) Shri Bhasin next contended that the learned Additional District Judge erred in holding that the plea of illegality of the reference on account of its being unilateral was included in the objections already filed by the Hirer and the Guarantor. There is no force in this contention also. In the last paragraph of the original objections at page 2, the invalidity of the award was pleaded by staling that 'the whole proceedings of the arbitrator are void from beginning to end'. The plea of illegality of the reference on account of its being unilateral is only a further legal ground in support of the contention that the award was illegal and liable to be set aside. In the circumstances, it cannot be said, in my opinion, that the learned Additional District Judge had gone wrong in taking the view that the ground of attack against the award taken in the application, dated 20th January, 1965, was included in the original objections made on 20th February, 1963.

(11) The last -contention of Shri Bhasin was that the reference was not unilateral as the Hirer and the Guarantor had given their consent to the reference by the owners in clause 26(b) of the hire-purchase agreement. In Thawardas Phemmal's case (supra), 0 the Supreme Court observed at page 474 as follows: -

'A reference requires the assent of 'both' sides. If one side is not prepared to submit a given matter to arbitration when there is an agreement between them that it should be referred, then recourse must be had to the Court under section 20 of the Act and the recalcitrant party can then be compelled to submit the matter under sub-section (4). In the absence of either, agreement by 'both' sides about the terms of reference, or an order of the Court under Section 20(4) compelling a reference, the arbitrator is not vested with the necessary exclusive jurisdiction.'

(12) A question arose as to whether the view of the Supreme Court expressed in the above observation was with respect to all arbitrations or with respect to an arbitration only with reference to a question of law. A Full Bench of this Court considered the said , question in P. C. Aggarwal v. Banarsi Lal Kotiya, F.A.O. No. 139-0 of 1962, (5) and pronounced its view on 10th November, 1971, as follows:-

'NOW,there may bean agreement to refer present disputes or disputes which have arisen to arbitration. In such a case, the agreement will necessarily have to be mutual and it will be a composite document not only containing the 'arbitration agreement' but also the 'reference'. In such a case, no approach to the Court will be necessary under section 20 of the Arbitration Act for making a reference to arbitration unless there is no agreement between the parties upon the arbitrator to whom the reference is to be made in which case the parties may proceed either under chapter Ii or by means of an application under Charter Iii to the Arbitration Act.

(13) In cases where a contract between the parties contains what may be called an arbitration clause to refer future disputes to arbitration, the agreement is merely an agreement to submit future differences to arbitration within the meaning of section 2(a) of the Arbitration Act. If -disputes arise in the future, a reference has to be made to arbitration within the meaning of section 2(e) of the Arbitration Act and at this stage there should be a consent of both the parties. If the consent exists, it would not be necessary to proceed under Chapter Iii by making an application under section 20 of the Arbitration Act and the parties or one of the parties can proceed under Chapter Ii of the said Act. This view reinforces our earlier view that the above quoted observations of the Supreme Court are of general application and do not contemplate a unilateral reference.'

(14) The question then is Whether there was a consent of the Hirer and the Guarantor for the reference to the sole arbitrator by the owners in the present case. The contention of Shri Bhasim is that the consent was given in advance by the Hirer and Guarantor, and the same was incorporated in clause 26(b) of the hire purchase agreement. The said Clause has been set out earlier in this judgment. A perusal of the same shows that it contains only an 'arbitration agreement' regarding future disputes and not a reference of present disputes or disputes which had arisen to the sole arbitrator. So far as present disputes or disputes which have arisen are concerned, as pointed out by the Full Bench in the observations set out above, the agreement between the parties will necessarily have to be mutual and it will be a composite document containing not only the 'arbitration agreement' but also the 'reference' of the disputes which have arisen. 9-2 H. C. Delhi/72 .

(15) The words 'arbitration agreement' mean merely an agreement to get the disputes between the parties settled by reference or submission of the said disputes to arbitration. The word 'reference' means the submission of the 'terms of reference', i.e., the details of the particular dispute or disputes which have arisen between the parties. In such a case, the parties, in view of the mutual agreement, can themselves make a reference to the arbitrator without approaching the Court under section 20 of the Arbitration Act for making the reference to the arbitrator. If, however, there is no such mutual agreement between the parties upon the arbitrator to whom the reference is to be made, the parties have to proceed either under Chapter Ii or by means of an application under Chapter Iii of the Arbitration Act. On the other hand, in the case of future disputes, the arbitration clause in the agreement between the parties can only be an agreement to submit future disputes to arbitration within the meaning of section 2(a) of the Arbitration Act. It cannot obviously contain any consent or agreement about the terms of reference or details of the disputes as they have not yet arisen. According to the Full Bench decision, when disputes arise in the future, a fresh reference has to be made in pursuance of the arbitration clause, and at that stage there should again be a consent of both the parties regarding the terms of reference or details of the particular dispute or disputes which have arisen and the arbitrator. If there is such mutual consent after the disputes arise, it would not be necessary to proceed under Chapter Iii by making an application under section 20 of the Arbitration Act, and the parties or one of the parties can proceed under Chapter Ii of the said Act But, if such mutual consent is not forthcoming, one of the parties has to proceed under Chapter Iii by making an application under section 20 of the Arbitration Act.

(16) In the present case, clause 26(b) of the hire-purchase agreement deals only with future disputes or questions and matters of difference between the parties. As such, there cannot be any consent, and in fact there is no consent, in clause 26(b) regarding the terms of reference or details of any dispute or disputes between the parties. According to the decision of the Full Bench, the question of consent would arise as and when there is a dispute or disputes between the parties in the future. There is thus no force in the contention of Shri Bhasin that clause 26(b) of the hire-purchase agreement contains the consent of the Hirer and the Guarantor given in advance in respect of future disputes or questions and matters of difference between the parties and that the reference made by the owners to the sole arbitrator was not unilateral. In view of the decision of the Supreme Court in Thawardas Pherumal's case (supra) 0 and the decision of the Full Bench in P. C. Aggarwal's case (supra) 0, it has to be held that the learned Additional District Judge was right in taking the view that the unilateral reference made by the owners was invalid, and that consequently the award also was invalid and liable to be set aside.

(17) For the above reasons, the civil revision fails and is dismissed, but in the circumstances without costs.


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