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M. George and ors. Vs. Raju M. Mathew - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKerala High Court
Decided On
Case NumberC.R.P. No. 1403 of 1975
Judge
Reported inAIR1978Ker17
ActsArbitration Act, 1940 - Sections 28; Arbitration Rules - Rule 3
AppellantM. George and ors.
RespondentRaju M. Mathew
Appellant Advocate C.S. Thomas,; T.L. Anandasivan,; P.K. Jose and;
Respondent Advocate T.L. Viswanatha Iyer, Adv.
DispositionPetition dismissed
Cases ReferredHari Shanker Lal v. Sham
Excerpt:
arbitration - arbitration proceeding - section 28 of arbitration act, 1940 and rule 3 of arbitration rules - petition against order of court in arbitration - whether arbitrators had become functus officio - arbitrators enter into reference when they have applied their mind and done some act in furtherance of arbitration - no findings to show that they entered on reference - held, arbitrators cannot become functus officio even before they had enter into reference - petition dismissed. - .....be answered by confining the right to give notice by a party to the period of four months from the time the arbitrators entered upon the reference.7. in the light of the above exposition of the law by the supreme court, it sounds incongruous that the arbitrators had become functus officio before they had even actually entered on the reference. we are not prepared to hold that such a consequence would follow from the issue of the notices referred to earlier, in the light of our finding that the arbitrators had not entered on the reference. this conclusion of ours is only strengthened by the provisions of section 28 of the arbitration act which gives the court the power to enlarge the time for making an award (if this power is exercisable on the terms of the section) 'whether the time for.....
Judgment:
ORDER

1. This revision petition is against the order of the Sub-Court, Pathanamthitta in Arbitration O.P. No. 1 of 1970. The petitioner and the cr. petitioner were partners of a firm called M. George & Brothers, Bankers, Kozhencherry. There was a notice of dissolution of the firm issued by the one to the other; in response to which the arbitration clause in the agreement was invoked and one of the partners appointed an arbitrator Mr. K.V. Joseph. As the other partner did not appoint his arbitrators, a petition under Section 8 of the Arbitration Act, was filed to compel appointment of an arbitrator by the other partner or to have arbitration proceedings conducted by Mr K.V. Joseph as the sole arbitrator. That resulted in the appointment of an arbitrator on behalf of the other partner also. Asarbitration proceedings did not progress any further, I.A. No. 941 of 1971 was filed for appointment of a Receiver. The same was dismissed by order dated 18-7-1973. On 16-8-1973 I.A. No. 456 of 1973 was filed for reviewing the said order on the ground that it was vitiated by error apparent on the face of the record and that there was fraud on the part of the counter-petitioner. To substantiate the contentions taken in support of he review. I.A. 473 of 1973 was filed for permission to take out summons to the Income-tax Officer for production of certain records. The counter-petitioner resisted the application contending that it was not maintainable as the court had become functus officio with the passing of the final order on the O.P. and that for the same reason is had no jurisdiction either to appoint a Receiver or to summon documents. By its order dated 5-6-1974, the court held that the reference was pending before the Arbitrators and the court had jurisdiction under Section 41(b) read with the IInd Schedule of the Arbitration Act, to appoint a Receiver. I. A. No. 473 of 1973 was allowed subject to the relevancy of the document; being considered and decided at the time of hearing (the statement in para 3 of the order under revision, where it is stated that I.A. 456 of 1973 was allowed seems to be a mistake for I.A. 473 of 1973). Against the said order, C.R.P. 662 of 1974 was filed in this Court. This Court concurred with the court below on the question of jurisdiction and remitted the matter back to the court to consider the question whether the arbitrators had become functus officio or not. That question was considered by the court below in the order against which this revision has been preferred.

2. Two arguments were advanced before the court below, which have been repeated before us also in this revision petition. The arguments were: (1) that the Arbitrators had actually entered upon the reference and done nothing further thereafter for a period of four months, Mid therefore the proceedings had come to an end; and (2) even if they had not entered upon the reference, they had become functus officio as noticehad been issued to them on 15-10-1973 and 29-10-1973 by the petitioner and the counter petitioner, calling upon the Arbitrators to appoint an Umpire and more than four months had expired thereafter. The court below held both these points against the petitioner in this revision petition. It held that the Arbirators had not entered upon the reference. It held also that the Arbitrators had not become functus officio.

3. In support of the argument that the Arbitrators had actually entered upon the reference Counsel for the revision-petitioners relied on Ex. A1 notice dated 23-12-1974. That notice is issued by Mr. K.V. Joseph one of the arbitrators to the petitioner in the O.P. (respondent herein). The notice is as follows :

'Sub: Arbitration O.P 1/1970 in the Sub-Court, Pathanamthitta.

You will be aware that no steps have been taken to enter upon the reference or to act in accordance with the appointment from the Honourable Court.

On 14-11-1973 I have sent a letter to Sri. O. Thomas, the Co-Arbitrator asking his convenience to take steps to the speedy disposal of arbitration. But no reply has been received so far.

I request you therefore to take immediate action through Court so that the arbitrators may be enabled to enter on the reference in accordancewith law.'

According to the revision petitioners' Counsel, this amounts to the arbitrators 'entering upon the reference' within the meaning of Rule 3 of Schedule I of the Arbitration Act. That Rule reads as follows:

'3. The arbitrators shall make their award within four months after entering on the reference or after having been called upon to act by notice in writing from any party to the arbitration agreement or within such extended time as the Court may allow.'

4. As to what is meant by an entry on the reference has been the subject-matter of judicial decisions both in England and in our country. The Indian Arbitration Act at present is modelled, almost entirely on theEnglish Act. The decisions under the English Act would therefore be appropriate. On the facts presented in this case, it is unnecessary for us to take a detailed survey or examination of the case law dealing with this aspect of the question. Briefly stated, in the English decision in lossifoglu v. Coumantaros (1941) 1 KB 396 at p. 401, a more liberal view in regard to the question of 'entering upon the reference' was taken than what had prevailed in the earlier decision in Baker v. Stephens, (1867 (2) Q.B. 523). There have been decisions in this country following, or considering the principle of the earlier English decision. But subsequent to the later English decision, the High Courts of this country have considered the position. In particular, we would refer to the decisions in Messrs. Bajranglal Laduram v. Ganesh Commercial Co. Ltd. (AIR 1951 Cal 78), Dr. Babu Bhai Vanmalidas v. Prabhod Pranshankar (AIR 1956 Bom 146), Soneylal v. Lachhminarain, (AIR 1957 Pat. 395) and in Ramanath Agarwalla v. Goenka & Co., (AIR 1973 Cal. 253 (FB) ). The Full Bench of the Calcutta High Court after surveying the position stated the rule as follows (at p. 258):

'35. We, therefore, answer the questions referred to us as follows :

(1) An Arbitrator does not enter on the reference as soon as he assumes the office of an Arbitrator. An Arbitrator does not necessarily enter on the reference when he actually commences the decision of the matter in the presence of both parties or ex parte. An Arbitrator enters on a reference when he first applies his mind to the dispute or controversy before him depending on the facts and circumstances of each case.

(2) In view of our answer to question No. 1, this question need not be answered.'

The two questions referred to the Full Bench have been stated in paragraph 8 as follows (at p. 255);

'8. The questions of law referred to us are as follows: (1) When does an arbitrator enter on a reference? Does he enter it as soon as he assumed the office of an arbitrator, or does any act as an arbitrator, or does he enter it only whenhe actually commences the decision of the matter in the presence of both parties or ex parte? (2) Was Bairangalal's case rightly decided in so far as it held that arbitrator must be held to have entered on the reference when they accepted their appointment?'

(The case referred to in Question 2 is AIR 1951 Cal. 78). The difficulty for the revision petitioner is, that even within the limit and within the meaning of the principle stated about 'entering on the reference' as expounded by these decisions, the revision petitioner cannot fit his case. The principle that has crystallised from the decisions of the Indian Courts after considering the later English decision, stated broadly, is that the Arbitrators can be said to have entered on the reference when they have applied their mind and done some act in furtherance of the arbitration. The earlier Calcutta case (AIR 1951 Cal 78) and the Patna case (AIR 1957 Pat 395) and the Bombay case, were prepared to find such application of the mind when the Arbitrators corresponded with each other to appoint an umpire (Patna and Bombay) or when, at their instance, the Secretary of the Bengal Chamber of Commerce, called upon the parties to file their pleadings (Cal.). The later Full Bench of the Calcutta High Court also requires an application of the mind. It left open the correctness of the earlier decision in AIR 1951 Cal. 78, and did not answer question 2, which directly raised the question of the correctness, of the earlier ruling. Ext. Al notice dated 23-12-1974 relied on by the revision petitioner in the instant case is merely by one of the arbitrators to one of the parties to the arbitration It proceeds on the basis that the arbitrators had taken no steps to enter upon the reference. It does not by itself ask for the appointment of an Umpire, but only requests for speedy steps to enable the arbitrators to enter on the reference. We are not prepared to find that it evidences an application of the mind by the arbitrators for the purpose of taking steps for proceeding with the arbitration. Ext. Al refers to an earlier letter dated 14-11-1973 sent by one Arbitrator to the other. That letter is not before us, and the contents ofthat letter, to the extent to which they have been noticed in Ext. Al, do not enable us to hold that the said letter evidences an application of the mind by the arbitrators to proceed with the arbitration proceedings within the meaning of the principle expounded in the decisions to which we have made reference.

5. In the result, therefore, we would negative the first contention of the revision petitioner and hold that there has been no entry on the reference by the arbitrators.

6. That brings us to the second contention raised by the revision petitioner viz. that even if there has beer no entry on the reference, the arbitrators have become functus officio by reason of the expiry of over four months from the date of notice to them by the parties to the arbitration proceedings. Here again, the notices on the basis of which the arbitrators are stated to have become functus officio are not before us. But the court below in para 6 of its order has stated that notices were given by the parties on 15-10-1973 and 29-10-1973 to the arbitrators to appoint an Umpire. We will take it that this was so. The Question then would be, whether, on the basis of this notice, the arbitrators can be said to have become functus officio. We have already extracted Schedule I. Rule 3 of the Arbitration Act. With reference to the said provision and to the relevant case law on the point, the Supreme Court in Hari Shanker Lal v. Sham-bhunath Prasad (AIR 1962 SC 78), had occasion to consider the question and to lay down the following propositions (at p. 82):

'The legal position may be formulated thus; (a) a notice to act may be given before or after the arbitrators entered upon the reference, (b) if notice to act is given before they entered upon the reference, the four months would be computed from the date they entered upon the reference, (c) if a party gives notice to act within 4 months after the arbitrators entered upon the reference, the arbitrators can make an award within 4 months from the date of such notice, and (d) in that event, after the expiry of the said 4 months the arbitrators become functus officio, unlessthe period is extended by court under Section 28 of the act; such period may also be extended by the court, though the award has been factually made.'

Earlier, in paras 9 and 10, construing Rule 3 of Schedule I of the Arbitration Act, the Court observed (at page 81 of AIR SC):

'The object of the Rule is to prescribe a time-limit in the interest of expeditious disposal of arbitration proceedings. If under the second alternative notice to act can be given at any time, it would enable one of the parties to enlarge the period of time prescribed indefinitely: not only the time limit prescribed would become meaningless but one of the parties could also, without the consent of the other, resuscitate a dead or stale reference. This could not have been the intention of the Legislature and, therefore, a reasonable construction should be placed upon the provision. Such a limitation on the right of a party to reopen an abandoned reference is implicit in the words 'to act'. A party can ask the arbitrator to act if he is legally bound to act under the reference. If after the expiry of the four months from the date of entering on the reference an arbitrator can no longer act, a notice given thereafter cannot ask him to act. Realizing this difficulty, learned counsel for the respondents suggests that an arbitrator can act even after four months, though the award cannot be filed without getting an extension of time from the court. But the relevant provisions do not support this contention.

(10) The third alternative in Rule 3 shows that an award can be made within the extended time allowed by the Court. Section 28 of the Act enables the court to extend the time for making of the award; extension of time may be given even after the award has been factually made. So till the time is extended an award cannot be made, though when extended, the award factually made may be treated as an award made within the time so extended. To put it differently, if time was not extended by court, the document described as an award would be treated as non est. In this view, the second alternative in Rule 3 can be invoked only in a case wherea notice to act has been given to the arbitrators either before the arbitrators entered on the reference or after they have entered on the reference but before the period of four months from that date has run out.'

In paragraph 11 of the judgment, the Court noticed that the construction put by them may start a chain of notices leading to the same result, which was sought to be avoided by the Rule. It was observed by the Court that though there might be some criticism it can be answered by confining the right to give notice by a party to the period of four months from the time the arbitrators entered upon the reference.

7. In the light of the above exposition of the law by the Supreme Court, it sounds incongruous that the Arbitrators had become functus officio before they had even actually entered on the reference. We are not prepared to hold that such a consequence would follow from the issue of the notices referred to earlier, in the light of our finding that the Arbitrators had not entered on the reference. This conclusion of ours is only strengthened by the provisions of Section 28 of the Arbitration Act which gives the Court the power to enlarge the time for making an award (if this power is exercisable on the terms of the section) 'whether the time for making the award has expired or not, and whether the award has been made or not'. In the face of this provision, we cannot hold that the Arbitrators had become functus officio even before they had entered on the reference.

8. We see no ground to interfere. We dismiss this revision petition with no order as to costs.


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