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Hukam Chand and Sons Vs. Sagar Silk and Sarees and ors. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberFirst Appeal No. 178 of 1980
Judge
Reported in22(1982)DLT196
ActsArbitration Act, 1940 - Sections 2(9)
AppellantHukam Chand and Sons
RespondentSagar Silk and Sarees and ors.
Advocates: R.L. Pal,; G.L. Rawal,; Sunil Agrawal, Advs
Cases ReferredIn Dewan Amolak Singh v. Lajpal
Excerpt:
.....was written in the credit memo, then the trial court was not correct to state that there was no arbitration agreement between the parties - hence, the court accepted the appeal made by the appellant - as a result, the order of the trial court was set aside - - ' (3) the appellants demanded payment from the respondents and ontheir failure to do so, they referred their claim to the association for settlement in accordance with the rules and regulations of the said association. the appellantssupplied the goods, they demanded payment, the respondents failed to payand thereforee disputes arose and the appellants were entitled to refer to thearbitrator. next it is submitted on behalf of the respondents that it was aunilateral reference on behalf of the appellants to the association and..........mercantile association and all disputes will besettled in accordance with the arbitration rules of delhi hindustanimercantile association. the decision of the arbitrator shall be final.'(3) the appellants demanded payment from the respondents and ontheir failure to do so, they referred their claim to the association for settlement in accordance with the rules and regulations of the said association.respondents no. 1 to 4 admittedly are not the members of the associationclause 36 of the rules of the association provides the various categories ofthe claims which are adjudicated upon by the association. sub-rule (5) ofrule 36 provides for settlement of claims by members of the associationagainst non-members. the notice of the appellants' claim was served up'>nrespondents no. 1 to.....
Judgment:

Sultan Singh, J.

(1) This appeal under Section 39(1)(vi) of theArbitration Act, 1940 is directed against the judgment and order of theSubordinate Judge 1st Class, Delhi dated 30.1.1980 setting aside the awarddated 18.8.1977 made by Delhi Hindustani Mercantile Association (Regd).(hereinafter referrred to as 'the Association') awarding a total sum of Rs.15,999.80 on account of the balance price of goods, costs of proceedings andinterest up to 21.2,1977 besides future interest at 1.25 per cent per month tothe appellants against respondents No. 1 to 4.

(2) Briefly the facts are that the appellant firm a registered partnership concern, carrying on cloth business at Delhi, is a member of DelhiHindustani Mercantile Association (Regd.), Chandni Chowk, Delhi. Respondents 1 to 4 purchased cloth on credit and a sum of Rs. 12,404.55 onaccount of balance of price of the goods besides interest and expenses remained due to the appellants. The goods were being sold on the credit memoissued by the appellants containing the following Note :

'THEgoods have been sold according to the rules and regulationsof Delhi Hindustani Mercantile Association and all disputes will besettled in accordance with the arbitration rules of Delhi HindustaniMercantile Association. The decision of the arbitrator shall be final.'

(3) The appellants demanded payment from the respondents and ontheir failure to do so, they referred their claim to the Association for settlement in accordance with the Rules and Regulations of the said association.Respondents No. 1 to 4 admittedly are not the members of the AssociationClause 36 of the rules of the Association provides the various categories ofthe claims which are adjudicated upon by the Association. Sub-rule (5) ofrule 36 provides for settlement of claims by members of the Associationagainst non-members. The notice of the appellants' claim was served up'>nrespondents No. 1 to 4. Onkar Nath, respondent Partner of the firm appearedbefore the Arbitrator appointed by the said Association on 13.7.1977 andmade a statement that there was difference in the statement of account ofthe appellants, that he be granted time to file the written statement on behalf of the respondents. The arbitrator adjourned the proceedings to 20thJuly, 1977, but the respondents thereafter absented themselves. After sonicadjournments the arbitrator gave his award as stated earlier.

(4) The appellants on 5.9.1977 made an application under Sections 14 and 17 of the Arbitration Act for making the said award a rule of theCourt. The arbitrator filed the award in Court. Notice of the filing of theaward was given to the respondents who filed their objections dated 8.1.1978alleging that there was neither any arbitration agreement, nor any validreference was made to the arbitrator, that the award was not made withinthe prescribed period, that they were not liable to pay interest, that thereexisted no dispute, that the arbitrator mis-conducted the proceedings, that they were not members of the Association and the said Association had noauthority to adjudicate against persons who were not its members, that theywere not served with any notice by the arbitrator and that the claim wasbarred by time. The trial Court framed the issue whether the award wasliable to be set aside in view of the objections to the award made by therespondents. Kanwal Krishan partner of the respondent firm appeared asa witness in support of the objections. He stated that he was not aware ifhis brother Onkar Nath ever appeared before the arbitrator in the saidproceedings. He denied the arbitration agreement. He stated that theynever agreed to arbitration or to refer any dispute to arbitration, that therewas no dispute, that respondent No. 1 was not the member of the Association,that there were no transactions with the appellants. In cross-examination heidentified his signatures on some of the papers but did not identify thesignatures of other partner Onkar Nath who had appeared before the arbitrator. On behalf of the appellants Ch. Hukam Chand appeared. He statedthat the appellants supplied goods as per various credit memos which containsthe said arbitration clause, that the claim against the respondents who werenot members of the.Association was maintainable, that Onkar Nath partnerof the respondents in response to the notice issued by the arbitrator appointedby the said Association appeared before him, that the arbitrator did not misconduct himself or the proceedings. The trial Court held that there was noarbitration agreement, and as the respondents were not members of the saidAssociation they were not governed by the rules of the said Association andconsequently the trial Court set aside the award dated 18.8.1977. Hencethis appeal.

(5) Learned counsel for the appellants submits that under Rules andRegulations of the Association it has power to arbitrate the claims of itsinembers against persons who were not members ofthe said Association. Herefers to rule 36(5) of the Rules and Regulations of the said Associationwhich provides that the Association has power to adjudicate upon claims ofmembers against non-members. Thus the trial Court was not correct inobserving that the Association had no jurisdiction to adjudicate the claim ofthe appellants against the respondents.

(6) The crucial question however is whether there was arbitrationagreement. The appellants used to sell the goods to the respondents. Theyused to issue credit memos containing the abovementioned note. Some ofthe credit memos are signed on behalf of the respondents. The note abovestated in the credit memo amounts to an arbitration clause. It states thatthe sale was governed by the Rules and Regulations ofthe Delhi HindustaniMercantile Association and that the decision of the arbitrator shall be final.In other words, the Rules and Regulations of the said Association were in-corporated bodily in every credit memo/bill issued by the appellants to therespondents. No particular form of arbitration agreement is obligatory. Toconstitute an arbitration agreement all that is required is that there must bean agreement in writing to get their dispute settled. Under Section 2(a) ofthe Arbitration Act it is not necessary that the written agreement must besigned. In the instant case there is a written agreement. On some of thecredit memos proved by the appellants before the arbitrator and the trialCourt there are signatures on behalf of the respondents although signatureswere not required. The respondents on receipt of the goods along with thecredit memos agreed to be bound by the Rules and Regulations of the saidAssociation which agreement is in writing. Such agreement arises by incorporation of the Rules and Regulations which contain title arbitration clauseand under which the disputes are referred to arbitration. The doctrine of'Incorporation by reference' means that terms of one document containingan arbitration clause are incorporated in another document under which thedispute arises (See Russell on Arbitration, Nineteenth Edition page 49-50).In the instant case when the credit memo refers to the Rules and Regulationsof the Association it means that the Rules and Regulations of that Associationcontaining the arbitration clause became part and parcel ofthe credit memo,and must be read into the bargain as though written in the credit memo. InChhajjumal Sumer Chand and another v. Firm sohan Lal Kanhaiyu Lal andOthers, 1971(2) 2nd Delhi 416 the bills contained a clause to the effect thatthe dispule between the parties to the transaction would be referred to theAssociation for albitration. It was held that though the bills were not signedby the parties it amounted to arbitration agreement within the meaning ofSection 2(a) of the Arbitration Act. It must thereforee be held that the trialcourt was not correct in holding that there was no arbitration agreementbetween the parties. I may mention that the appellants had made an application under Section 28 of the Arbitration Act for extension of time for themaking and signing of the award by the arbitrator which application was alsodecided by the same Subordinate Judge. He, in his order dated 13.3.1979held that as per the said note on the credit memo there was an arbitrationagreement under which all disputes were referred to arbitrator appointed bythe Association. It is not clear how the Subordinate Judge changed his viewson the same set of facts in the impugned order, on the basis of the creditmemos in question pertaining to the goods sold to the respondents. LearnedCounsel for the respondents submits that mere non-payment is not a disputereferrable to the arbitration. It is not correct to say so. The appellantssupplied the goods, they demanded payment, the respondents failed to payand thereforee disputes arose and the appellants were entitled to refer to thearbitrator. Next it is submitted on behalf of the respondents that it was aunilateral reference on behalf of the appellants to the Association and thereforee it was bad. It is also not correct to say so. When the claim was placedbefore the arbitrator of the said association notices were issued to the respondents who were served. The respondents through Onkar Nath partner on13.7.1977 submitted to the jurisdiction of the arbitrator and sought time tofile the written statement with a view to explain the difference in the statement of accounts of the appellants but subsequently the respondents absentedthemselves. The appearance of the respondents before the arbitrator amounted submission to the jurisdiction of the arbitrator and taking part in theproceedings, thus availing chance to have a decision in their favor. If therespondents had submitted to the jurisdiction of the arbitrator and had takenchance to have a decision in their favor the award given by the arbitratorcannot be said to be invalid and set aside on the ground that the arbitratorentered upon the reference, having been moved by only one of the parties.In Dewan Amolak Singh v. Lajpal 1966 D.L.T. 100 it has been held that theparty submitting to the jurisdiction of the arbitrator cannot later on object tothe illegality of reference.

(7) Learned counsel for the respondents next submits that the appellants' firm is not registered under the Indian Partnership Act and thereforeethe proceedings before the trial Court were barred under Section 69 of theIndian Partnership Act. The appellant firm is registered under the IndianPartnership Act. The certified copy of form 'A' from Registrar of Firms,Delhi is Ex. P.W.1/1 which shows that the appellants' firm was registered on5.10.1974 under the said Act.

(8) The appeal is thereforee accepted. The judgment and order ofthe trial Court are set aside. The award dated 18.8.1977 of Mr. 0.P. Jain)Arbitrator of Delhi Hindustani Mercantile Association (Regd.) ChandniChowk, Delhi is made a rule of the Court. Accordingly a decree for Rs.15,999.80 with interest at 1.25 per cent per mensum from the date of awardi.e. 18.8.1977, till realisation is passed in favor of the appellants againstrespondents 1 to 4. Respondents 1 to 4 shall also be liable to pay costs ofthis appeal to the appellants.


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