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Jay Rubber Co. (India) Pvt. Ltd. Vs. the State Chemicals and Pharmaceutical Corporation of India Ltd. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberSuit No. 373A of 1980
Judge
Reported in21(1981)DLT11
ActsArbitration Act, 1940
AppellantJay Rubber Co. (India) Pvt. Ltd.
RespondentThe State Chemicals and Pharmaceutical Corporation of India Ltd.
Advocates: S.S. Ray,; K.K. Buchar,; L.M. Sanghvi and;
Cases Referred(See Finn Madanlal Roshanlal v. Hukamchand Mills
Excerpt:
.....would be considered as final in respect of both fact and law - - 'in case you fail to appear, you will be proceeded ex parte',the umpire wrote. it remains a contract in form as well as in essence. a party may renounce or waive a statutory provisions which is for his benefit, and the same holds good in respect of the provisions contained in the first schedule. on the question whether civil procedure code did 'by their conduct waive that right i am clearly of opinion that they did. brought out the distinction well in swallow and pearson v. if civil procedure code had stayed away from the proceedings before the umpire they would have had a strong case. it is like exploring a dark continent. why should they not pay interest at the same rate, i fail to understand. that the umpire has..........of 100. met. tons. the second application was made on 28th december, 1978 for 200 met. tons. civil procedure code issued two allocation orders intimating the claimants that the price they would charge for the goods was rs. 96901- per met. ton ex godown. (3) with two allocation orders in his hands the claimants' representative went to madras office of civil procedure code to take delivery of the allotted quantity on august 7, 1979. he asked for. a release order. he paid the price of the goods by means of a demand draft of rs. 3,52,716.00 . the madras office did not deliver the goods. they said that the state trading corporation had placed an embargo on the sale of petroleum products and the necessary delivery order will be issued when the embargo is lifted. so the representative.....
Judgment:

Avadh Behari Rohatgi, J.

(1) The Dispute G.P.C. is an instrumentality of the State. Its full name is State Chemicals & Pharmaceuticals Corporation of India Ltd. It is a Government owned company. As a subsidiary of the State Trading Corporation it is trading in public sector.

(2) Civil Procedure Code imported Pvc Resins Japanese make in India in 1978. The actual users of this commodity could buy it from them. The claimants. Jay Rubberco (India) P. Ltd., made two applications for allotment of Pvc Resins. One application was made on 17th October, 1978 for allotment of 100. met. tons. The second application was made on 28th December, 1978 for 200 met. tons. Civil Procedure Code issued two allocation orders intimating the claimants that the price they would charge for the goods was Rs. 96901- per met. ton ex godown.

(3) With two allocation orders in his hands the claimants' representative went to Madras office of Civil Procedure Code to take delivery of the allotted quantity on August 7, 1979. He asked for. a release order. He paid the price of the goods by means of a demand draft of Rs. 3,52,716.00 . The Madras office did not deliver the goods. They said that the State Trading Corporation had placed an embargo on the sale of petroleum products and the necessary delivery order will be issued when the embargo is lifted. So the representative came away disappointed.

(4) On 31 August 1979 Civil Procedure Code sent a; telegram to the claimants informing them that the price of the goods in question had been raised from Rs. 9690.00 per met. ton to Rs. 12,334.00 per met. ton and that this increased price was effective from August 18, 1979. To this increase in price the claimant? protested. They said that it was a unilateral change and in terms of the contract Cpc were not entitled to raise the price. Civil Procedure Code paid no head to the protest. They told the claimants that if they were prepared to pay the increased price they can have the goods'. The claimants paid the increased price under protest and lifted the goods.

(5) There was an arbitration clause in the contract of sale. The claimants invoked the clause. The clause provides for appointment of two-arbitrators, one by each party, and an umpire in case of difference of opinion between the arbitrators. He was to decide if they disagree. Accordingly, the claimants appointed Mr. J. L. Sabharwal, Advocate as their arbitrator. Cpc appointed Mr. Bishen Narain, Senior Advocate as their arbitrator. The two arbitrators agreed upon the appointment of Shri S. M. Andley, retired Chief Justice of Delhi High Court as the umpire.

(6) The arbitration proceedings commenced at the resident of Shri, Bishen Narain at 32, Friends Colony, New Dcihi. The parties filed pleadings before them. Before the stage of evidence arrived there was a difference of opinion between the arbitrators on the venue of arbitration proceedings. Mr. Sabharwal suggested that the witnesses should be examined at his residence in Punjabi Bagh or at his office. Mr. Bishell Narain did not agree to the change of venue. He wanted proceedings to continue at his residence. On this difference of opinion Mr. Bishen Narain adjourned the case sine die on May 22, 1980. On May 23, 1980 Mr. Sabharwal wrote to the umpire that since the arbitrators have .differed he should enter on the reference.

(7) On 29th May, 1980 the umpire wrote to the Civil Procedure Code that they should attend the proceedings before him on 4th June, 1980 at 10.30 A.M. 'In case you fail to appear, you will be proceeded ex parte', the umpire wrote. Civil Procedure Code did not appear. The umpire took ex parte proceedings against them. On June 30, 1980. Mr. A. N. Parekh, Advocate for Civil Procedure Code wrote to the umpire that he could not assume jurisdiction in the matter without the arbitrators sending him a notice of 'their having disagreed on merits of the case'. But Mr. Parekh did not persist in this objection. He requested the umpire to set aside the ex parte order dated June 4, 1980 and to fix a date for allowing Civil Procedure Code to make submissions in the case before him. The umpire to suit the convenience of counsel for Civil Procedure Code fixed the case for July 12, 1980. Mr. Parekh appeared before the umpire. The ex parte order was set aside because Mr. Parekh submitted to the jurisdiction of the umpire. It was so recorded by the umpire. The matter was then adjourned for evidence of the parties. The umpire recorded the evidence of witnesses of both sides on. 19th, 20th, 23rd, 26th and 27th July, 1980. He heard arguments on 2nd August, 1980. On 3rd August he made and published the award.

(8) The umpire made a non-speaking award. He awarded a sum of Rs. 1,92,483.20 in favor of the claimants against Civil Procedure Code . He also awarded to the claimants interest on the said sum at 18 per cent per annum from the date of the award till payment or passing of the decree whichever is earlier. He also awarded Rs. 13,440.00 as costs of arbitration to the claimants.

(9) The claimants have made an application for making the award a rule of the court. Civil Procedure Code have filed objections to the award. Jurisdiction of the Umpire

(10) The substantial ground on which Civil Procedure Code challeng the award is that the umpire had no jurisdiction to enter on the reference in lieu of the arbitrators unless and until the two arbitrators had given him a notice in writing staling that they cannot agree. It is said that the letter of Mr. Sabharwal dated 23rd May, 1980 to the umpire was not enough because Mr. Bishen Narain did not write to the umpire that they had disagreed. This 'objection is founded on clause 4 of the First Schedule to the Arbitration Act, 1940. This clause reads :

'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 staling that they cannot agree, the umpire shall forthwith enter on the reference in lieu of the arbitrators.'

(11) In this connection I was referred to M/s. Kalinga Otto (P) Ltd. v. M/s. Charanjit Kochhar, : AIR1972Ori172 . The principle land down in the case is unexceptionable. There cannot be unilateral reference to the umpire by one of the arbitrators alone. A notice in writing has to be given by both the arbitrators staling that they cannot agree. There has to be a joint action on their part. Unilateral action by one of the arbitrators is not in keeping with the requirement of clause 4. With this preposition no one can quarrel. But the distinguishing feature of the Orissa case is that the objecting party appeared under protest and took objection to the competency of the umpire to proceed with the reference. C.P.d. Submits to Jurisdiction.

(12) Here the facts are quite different. Civil Procedure Code submitted to the jurisdiction of the umpire. They requested him to set aside the ex-parte order dated 4th June, 1980 and to hear them in the case. The umpire set aside the ex parte proceedings. He heard them fully in the case. Civil Procedure Code filed a reply before the umpire. They submitted documents. They examined witnesses. They cross-examined the claimants witnesses. It does not now lie in the mouth of Civil Procedure Code that the umpire acted without jurisdiction in the case.

(13) Dr. Singhvi on behalf of Civil Procedure Code argued that clause 4 of the First Schedule is a statutory condition for the exercise of jurisdiction by the umpire and could not be waived by Civil Procedure Code merely by taking part in the proceedings. I do not agree. The First Schedule deals with the implied conditions of arbitration agreement.' Section 3 says that certain terms are to be implied in an arbitration agreement, unless the contrary intention is expressed in it. The implied conditions set out in First Schedule are imported in the arbitration agreement by statutory force. They will be deemed to have been incorporated in the arbitration agreement, unless a different intention is expressed therein. But this does not make the arbitration agreement a statutory arbitration. It remains a contract in form as well as in essence.

(14) The general principle that there is no estoppel against the statute does not apply to the provisions embodied in the First Schedule. These provisions are no doubt statutory provisions, but by virtue of Section 3, they can be modified by the parties to an agreement. A party may renounce or waive a statutory provisions which is for his benefit, and the same holds good in respect of the provisions contained in the First Schedule. The dictum that there is no estoppel against statute applies to only those statutory provisions which the parties cannot, by consent, modify or change. On this point there is a direct authority of the Pakistan Sind court reported in Pakistan Law Decisions 1955 Sind 268 and briefly reported in Air 1955 Nuc (Pakistan) 5462(2) : Sind 'Cotton Exporters vs. A. B. Sadiq Brothers.

Russelsays that it is competent for the parties to renounce or waive statutory provisions which are for their benefit. Russel on Arbitration, 19th ed. p. 280). Mellor J. in Palmer.v. The metropolitan Rly. 1862 (131) LJ.Q.B. 259 said :

'The arbitration clauses being introduced for the benefit of the parties, they are at liberty to renounce at their pleasure the advantages which these clauses afford.'

(15) Dr. Singhvi referred me to Nazir Ahmad vs. Emperor . In Taylor vs. Taylor, 1876 1 Ch. D. 426, Sir George Jessel Mr laid down tLe classic rule, namely, where a power is given to do a certain, thing in a certain way the thing must be done in that way or not at all. Other methods of performance are necessarily forbidden. The Privy Council has said the same thing. But this principle. does not apply to private relations. It has no place in contractual and consensual cases. The implied conditions in the First. Schedule are intended by the legislature or the benefit of a party only. They are not for the benefit of the public. There is no absolute prohibition in the statute of any kind. ft has no discernible public policy for its object.

(16) What public interest' can there be in preventing parlies, who wants as speedy a decision, as possible, from going to the umpire and asking him to enter on the reference in lieu of the arbitrators. The Act contains nothing to indicate that contracting out is forbidden. On the contrary the parties are encouraged at every stage to come to an agreement. Undoubtedly the umpire was validly appointed. There is no question of inherent lack of Jurisdiction in this case. Waverly Jute Mills v. Raymon and Co., : [1963]3SCR209 on which reliance has been placed by Civil Procedure Code does not apply to a case where appointment is valid. The only question was whether the umpire could lawfully enter on the reference without arbitrators notifying him that they have differed. Now if he did enter on the reference it was, a procedural irregularity and this could be waived. Clause 4 is intended for the role benefit of the parties. They have no reference whatever to the rest of the public. A party may, if he chooses, waive the benefit of has right and if he does so, he cannot afterwards object to the award. He can waive the benefit of the statute. The clause is essentially procedural, and consequently Cpc could waive the right to object to the umpire's assumption of jurisdiction. On the question whether Civil Procedure Code did 'by their conduct waive that right I am clearly of opinion that they did.

(17) A party for whose benefit these provisions are incorporated in the arbitration agreement can renounce the benefit and waive thereby the statutory protection. But if the public are interested in the general observance of the conditions prescribed by the statute, it has always been held on grounds of public policy that there can be no waiver, even by express contract or consent, of the right to such observance by any individual party. (Spencer Bower & Turner, Estoppel by Representation (3rd ed) p. 143). Parker J. brought out the distinction well in swallow and pearson v. Middlesex County Council 1963 (1) All Er 580. He said :

'There is no doubt that a man is entitled to or to agree to waive the advantage of a law or rule made solely for his benefit and protection. It is equally clear that no person can waive a provision or a requirement of the law which is not solely for his benefit. but is for the public benefit,'

(18) That the right to object to the umpire's authority was waived is clear from the letter of Mr. Parekh dated 30th June. 1980 and the. proceedings of the umpire dated 12th July, 1980. The net result of both these is that Civil Procedure Code submitted to the jurisdiction of the umpire willy-nilly. More willy than nilly. They voluntarily appeared before him. They asked him to set aside the ex parte proceedings and to hear them in defense of the claim. Witnesses were examined by Civil Procedure Code . Case was argued. On the whole, thereforee, it appears to me that Civil Procedure Code , having clear knowledge of the circumstances on which they might have founded an objection to the umpire's authority to enter on: the reference did submit to his jurisdiction. Civil Procedure Code took the chance of a favorable decision. It is too late for them, after the award has been made, and on the application to file award to, to insist on this objection that the umpire acted without jurisdiction. Civil Procedure Code appeared before the umpire. They participated in the proceedings before him. They took the chance of an award in their favor. Now they cannot turn round and say that the umpire had no inherent jurisdiction and its participation in the proceedings before the umpire is of no avail, In all oft-quoted passage Russel says :

'If the parties to the reference either agree before hand to the method of, appointment, or afterwards acquiesce in the appointment made, with foll knowledge of all the circumstances, they will be precluded from objecting to such appointment as invalidating subsequent proceedings. Attending and taking part in the proceedings with full knowledge of the relevant fact will amount to such acquiescence.' (Russel on Arbitration 19th ed. p. 140)

This principle was applied by the Privy Council in Chowdhri Murtaza Hussain v. Mt. Bibi Bechunnissa (1876) 3 Ind App 209 and the Supreme Court in N. Chellappan v. Secretary Kerala State Electricity Board Air 1975 SC.

(19) The only inference I can draw from the conduct of Civil Procedure Code is that they had no objection to the authority of the umpire when they participated in the proceedings before him and took the chance of an award in their favor. Their voluntarily appearance before the umpire, their submission to his jurisdiction, and participation in the proceedings are facts strongly suggestive of a waiver of the statutory provisions. If Civil Procedure Code had stayed away from the proceedings before the umpire they would have had a strong case. But when they appeared before him and submitted to his jurisdiction they burnt their boats. They yielded to his authority. They bound themselves to abide by the result, that is, the award of the umpire. Acquiescence of a party in the mode of appointment of the umpire or assumption of jurisdiction will preclude him from objecting to the award. What constitutes a 'disagreement'

(20) Counsel for Civil Procedure Code argued that there was no disagreement between the two arbitrators on the merits of the case and there- fore the umpire could not enter on the reference in lieu of arbitrators. I cannot agree. It is unfortunate that the arbitrators differed on the question of venue. But there is no definite rule which can be laid down as to what constitutes a disagreement. Non-agreement on venue wag equivalent to disagreement. If one of the arbitrators declined to proceed further with the case because they cannot agree upon the place of meeting it Will constitute disagreement. (Russel on Arbitration 19th ed. p. 254). The umpire's award cannot be set aside merely because there was no difference of opinion on the merits. What took place on May 22, 1980 put an end to the authority of the arbitrators. There was sufficient disagreement between the arbitrators to authorise the interference of the umpire. Misconduct

(21) Civil Procedure Code also challenge the award on the ground of technical misconduct of the umpire. The misconduct alleged is that the umpire in ordering the refund of Rs 1,92,483.20 misconstrued the terms of the contract and this invalidates the award. The award is a non-speaking award, as I have said. In short and staccato sentences the umpire has ordered Civil Procedure Code ' 'Refund Rs. 1.92,483.20 p. with interest and costs'. This is all. He has not given reasons for the conclusion he has arrived at. He has not referred to the contract. He has not invited those reading the award to read the contract. There is no reference to any specific provision of the contract from which it can be said that his conclusion is based on that clause. He has not said : 'On the wording of this clause I hold so and so'. Unless he says something of the kind the door is not opened to look at the contract and to determine whether the umpire has made mistake in law. It Is thereforee not possible to say that on so and so clause of the contract the umpire's interpretation is erroneous. Unless the error of law appears on the face of the award the court cannot set aside the award. The arbitrator is the final judge of law and fact. His award is final as to both fact and law.

(22) The real dispute before the umpire was whether Civil Procedure Code had a right to increase the price from Rs. 9690 to Rs. 12,334 per met. ton. The umpire came to the conclusion that Civil Procedure Code were not entitled to increase the price. thereforee he ordered refund of the excess to the claimants. The umpire has not disclosed in the award his reasons for coming to this conclusion. The reasons which impelled him to arrive at a particular conclusion we have no means to discover. They will remain in the breast of the umpire. The award is inscrutable as the face of the Sphinx. The umpire's decision may be right or wrong. It is not misconduct on the part of the umpire to come to an erroneous decision, whether the error is one of fact or law. It is rot open to the court to prob into the mental processes of the arbitrator. It is an impossible exercise. It is like exploring a dark continent. (See Jivarajbhai v. Chmtamanrao : [1964]5SCR480 Alien Berry and Co. vs. Union of India : [1971]3SCR282 , N. Chellappan v. Secy. Kerala State Electricity Board : [1975]2SCR811 , Bungo Steel Furniture v. Union of India & Firm Madanlal Roshanlal Mahajan v. Hukamchand Mills, : [1967]1SCR633 and 1030(12), and The Upper Ganger Valley Electricity Supply Co. v. The U.P. Electricity Board, : [1973]3SCR107 . The court cannot start on an expedition of enquiry into the reasons which led the umpire to come to a particular conclusion. In cases of non-speaking awards it is not open to court to start on a voyage of dicovery to find, where no reasons are given by the umpire, by what process of reasoning and inference he reached the conclusion he did. The thought processes will remain hidden for ever in the innermost recesses of the umpire's mind. On the whole case I am of opinion that the umpire heard both sides in a judicial manner. The bona fides, care, conscientiousness and fairmindedness of the arbitral tribunal cannot be questioned. I thereforee hold that there is no misconduct of which the umpire can justly be accused.

(23) Another objection to the award was that the umpire has awarded interest at an excessive rate. The umpire awarded 18 per cent p.a. interest to the claimants. There was evidence before him. The witnesses of Civil Procedure Code admitted in his presence that in case of credit Civil Procedure Code charge 18 per cent p.a. interest. The umpire thought he should award interest at the same rate to the successful claimants. If Civil Procedure Code charge interest at 18 per cent p.a. why should they not pay interest at the same rate, I fail to understand. That the umpire has power to award interest as a court has is now well settled by a catena of decisions. (See Finn Madanlal Roshanlal v. Hukamchand Mills, : [1967]1SCR105 , and The State of Madhya Pradesh v. M/s. Saith and Skelton P. Ltd. : [1972]3SCR233 . Costs

(24) Lastly it was said that the umpire awarded excessive costs. He awarded R. 13,440 to the claimant as costs of arbitration before the arbitrators and himself. A bill of costs was filed by the claimants before him. On that basis he awarded full costs. In his opinion the claimants had spent that amount on litigation and he thought that they should be reimbursed. That the umpire has power to award costs no one will deny.

(25) For these reasons I dismiss the objections of Civil Procedure Code and make the award a rule of the court and pass a decree in accordance with the award. The claimants will be entitled to interest at 18 per cent per annum from the date of the decree till payment because this was a commercial transaction.

(26) The claimants will also be entitled to their costs.


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