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Union of India Vs. Karsandas Jethabhai and Co. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtGujarat High Court
Decided On
Case NumberFirst Appeal No. 568 of 1971
Judge
Reported inAIR1977Guj183; (1977)0GLR342
ActsArbitration Act, 1940 - Sections 3 and 30; Evidence Act - Sections 115
AppellantUnion of India
RespondentKarsandas Jethabhai and Co.
Appellant Advocate I.C. Bhatt, Adv.
Respondent Advocate G.N. Desai and; J.R. Nanavati, Advs.
Cases ReferredLondon Export Corporation Ltd. v. Jubilee Coffee Roasting Co. Ltd.
Excerpt:
.....the provisions of the indian arbitration act. 4. as far as the question on the basis on which the award in question is set aside by the trial court is concerned, the earlier bombay- view reported in the case of vinayak vishnu (air 1959 bom 39) (supra) referred to above, has been set at naught by the subsequent division bench of the bombay high court which held that the view expressed in that case wag no longer good law. 6) although an umpire has no function to perform in the absence of a disagreement between the arbitrators or their failure to make an award in the time allowed, the terms of clause 2 clearly show that the legislature intended that the arbitrators shall appoint an umpire as a matter of course irrespective of whether they do or do not agree with each other. 'shall appoint..........appeal has been filed by the union of india.4. as far as the question on the basis on which the award in question is set aside by the trial court is concerned, the earlier bombay- view reported in the case of vinayak vishnu (air 1959 bom 39) (supra) referred to above, has been set at naught by the subsequent division bench of the bombay high court which held that the view expressed in that case wag no longer good law. the case of vinayak vishnu (supra) wag decided by the single judge of the bombay high court. the said case came to be reviewed by the division bench of the bombay high court in the case of m/s. modern builders v. hukmatrai n. vadirani, air 1967 bom 373. interpreting clause 2 of the first schedule, the division bench held the provisions of the said clause reared merely.....
Judgment:

Bhatt, J.

1. This appeal has, been filed under S. 39 of the Indian Arbitration Act, 190 by the Union of India, owning and representing the Western Railway, against the respondent, who had filed a Misc. Application No. 59 at 1967 in the, Court of Civil Judge (S. a.) Porbandar under S. 30 of the said Act for setting aside the award dated 1st April, 1967 by the original non-applicants No& 1 and 4 the arbitrators, This first appeal had originally come before the, learned single Judge of this Court, who, having found that the ruling reported in the case of Vinayak Vishnu Sahasrabudhe v B. G Gadre, AIR 19,59 Bom 36 was not good law, had referred the same to, the Division Bench.

2. The facts of the case are that the that present respondent M/s. Karshandas Jethabhai and Company had undertaken some contract work of the Railways and a dispute had arisen between this Company and the Railways regarding certain amounts of payment. As per the agreement contained in the arbitration clause', the matter was referred to the arbitration of one Shri S. K. Iyer, Deputy Chief Engineer (South and Central) Western Railway and Shri N. K. Rewari, Deputy Financial Adviser, Western Railway, Church gate, Bombay. After hearing both the parties, and after affording an opportunity to both the sides to lead what , ever evidence they wanted to lead, the arbitrators had given their award on 1st April 1967 which was got filed by the original applicant the contractor by filing an application before the court under S. 14 of the Act. The award was ac accordingly filed by the arbitrators and then the contractor filed their objections, Ex. 13, on 7th August 1967 praying for the setting aside of the award as per Section 30(a) and (c) of the Act. The said prayer was resisted by the Union of India before the trial Judge, but no evidence was led before the court. The court held that the arbitrators were duty appointed, but set aside the award on the ground that the arbitrators had no jurisdiction in so far as they had failed to appoint an Umpire before proceeding with arbitration as per Clause 63 (3) (b) of the General Conditions of the Contract as laid down in Book of 1955 governing the relevant contract and also under the provisions of the Indian Arbitration Act.

3. Against this setting aside of the award by the trial court, the present appeal has been filed by the Union of India.

4. As far as the question on the basis on which the award in question is set aside by the trial court is concerned, the earlier Bombay- view reported in the case of Vinayak Vishnu (AIR 1959 Bom 39) (Supra) referred to above, has been set at naught by the subsequent Division Bench of the Bombay High Court which held that the view expressed in that case wag no longer good law. The case of Vinayak Vishnu (Supra) wag decided by the single Judge of the Bombay High Court. The said case came to be reviewed by the Division Bench of the Bombay High Court in the case of M/s. Modern Builders v. Hukmatrai N. Vadirani, AIR 1967 Bom 373. Interpreting Clause 2 of the first schedule, the Division Bench held the provisions of the said clause reared merely directory and, not mandatory. The Division Bench in this connection has observed as under:(at ding the appointment of an ump. 374, para. 6)

'Although an Umpire has no function to perform in the absence of a disagreement between the arbitrators or their failure to make an award in the time allowed, the terms of Clause 2 clearly show that the Legislature intended that the arbitrators shall appoint an umpire as a matter of course irrespective of whether they do or do not agree with each other. Mr. Dhanuka pointed out in this connection that prior to the Arbitration Act of 1940 It was not obligatory on the arbitration when they were even in number to appoint an Umpire. The corresponding clause in the First Schedule to the Indian Arbitration Act of 1899 provided that the arbitrators ''may appoint an Umpire at any time within the period during which they 'have power to make an award'. In Clause 2 of the First Schedule of the Arbitration Act of 1940 the language was changed and it was provided that the arbitrates. 'shall appoint an Umpire not later than one month from the latest date of their respective appointments'. The change was undoubtedly deliberate, and it appears to have been made because the Legislature felt that the arbitrators, if they fail to agree on the matters referred to them may also disagree on the nomination of an Umpire and that it was desirable that they should nominate an Umpire soon after they are appointed arbitrators. Relying on this legislative history, Mr. Dhanuka argued that the use of the word 'shall' in CI. 2 of the First Schedule instead of the word 'may' which appeared in the corresponding clause of the earlier Act, showed that the Legislature intended that the provision of Clause 2 should be mandatory and not directory. We d ' o not agree that the use of the word 'shall' is decisive of the question. When the Legislature had used the word ''may'' in the former clause, the appointment of an Umpire by the arbitrators was discretionary. With the use of the word 'shall' in the present clause the appointment has been made obligatory. It is, however, obvious that an obligatory rule may be either mandatory or directory depending upon whether the Legislature intended that non-compliance with the rule should or should not result in the nullification of subsequent proceedings. The real question, therefore, is whether the Legislature intended that the failure of the arbitrators to appoint an Umpire should result in depriving them of the power to proceed with the arbitration and in rendering invalid any award made by them.' We are in perfect agreement with the view expressed by the Division Bench of the Bombay High Court and we also hold that the terms of the contract which are in pari material with Clause 2 of the First Schedule of the Arbitration Act cannot be interpreted in such a way that the non-compliance with which would set at naught the award given by arbitrators.

5. Mr. Desai, however, tried to distinguish, this view expressed by the Division Bench of the Bombay High Court and by almost all other High Courts, on the ground that all those cases were dealing with Clause 2 of the First Schedule of the Act whereas in the present case what was sought to be enforced was a matter of a contract. Mr. Desai urged that when the parties by mutual consent laid down a particular provision as a condition precedent to the actual commencement of the arbitration . Proceedings, the court must uphold what they had Provided for. However, simply because the auxiliary verb 'shall' has been employed in the clause, it cannot be said that the parties intended that the non-compliance with the said clause would vitiate the whole reference and ultimately the award given therein. The clause in question reads as under:

'Before entering into reference, the two Arbitrators shall nominate an Umpire'.

However, we are not prepared to hold that the parties intended to treat this clause as a condition precedent and that non-compliance with it would render all subsequent steps as of no consequence.

6. In this connection it is to be noted that the contractor-applicant took part in the proceedings without raising any objection to the further proceedings without the appointment of an Umpire and have come forth with this technical grievance only after the contractor found that the award was not to their liking. This conduct on the part of the contractor, therefore would amount to waiver of the condition and the contractor applicant cannot be permitted to raise this question for the first time before the court. If the condition is a matter of contract alone, it is open to the contracting parties to waive that condition.

7. The above contention that was canvassed before the trail court and had come to be accepted by that court does not, in fact, arise in the present case, though in the initial stages this point was Urged by both the sides. However, to the credit of Mr. G. N. Desai, appearing for the contractor-applicant before us, it should be stated that on the perusal of the record, he ultimately found that, as a matter of fact, both these arbitrators had appointed one Mr. Malliya on 2Oth November 1965 as an Umpire and that a letter of that date was addressed by the arbitrators to the contractor-applicant informing them of this appointment. It is really said that the applicant raised this question before the court, keeping the court in dark about it, either advertently or inadvertently and it is also equally sad that the officers in-charge of the Railway Administration did not care to go through their files and find out that, as a matter of fact, an Umpire was appointed by the arbitrators before they entered on the reference. This is indeed a sad commentary on both the sides. However, we have dealt with the above question of law because the matter was referred to the Division Bench with a view to have a clear opinion of this court on this question which may be raised in future in some further litigations.

8. Mr. Desai then tried to support the judgment of the trial court on the ground that the award in question was unsustainable because though the record of proceedings was stretched over 365 pages, the arbitrators had not given a single reason for arriving at the conclusions of the award. It cannot be gainsaid that the award given by the -arbitrators simply records their conclusions without any reference to the grounds which weighed with them in brushing aside the large claim, involving a little less than a lac of rupees, and awarding only the meager amount of Rs. 5000/-. It is also true that the arbitrators did not show as to which of about seven claims was accepted by them and to what extent while they awarded the sum of Rs. 5000/-. Mr. Desai on these grounds alleged that the award was ex facie arbitrary and suffering from an error of law apparent on the face of record. Though the grievance of the applicant on this score is easy to be understood and appreciated, the plea canvassed by Mr. Desai that the award should be set at naught on the ground that it discloses no reasons for the conclusions arrived at cannot be accepted. Mr. Desai has also implored us that when it has been consistently laid down that even administrative questions involving some prejudice to some citizens have to incorporate reasons, it should be repugnant to the common sense that the arbitrators, who are quasi judicial authorities if not to some extent judicial authorities, should simply pronounce their final orders without disclosing in any way what prompted them to arrive at those conclusions. As far as the arbitration proceedings are concerned, the courts both in England and in India have consistently held that the arbitrators are not expected to deal with the Problems assigned to them in the manner in which the judicial or quasi judicial authorities do. Our Supreme Court in the case of Bungo Steel Furniture (Pvt.) Ltd. v. Union of India, AIR 1967 SC 378 had to deal with the very plea and the majority of the Supreme Court ruled as follows after reviewing the English authorities, (at P. 382 Para 9).

'It is now a well-settled principle that If an arbitrator, in deciding a dispute before him, does not record his reasons and does not indicate the principles of law on which he has Proceeded, the award is not on that account vitiated. It is only when the arbitrator proceeds to give his reasons or to lay down principles on which he has arrived at his decisions that the court is competent to examine whether he has proceeded contrary to law and is entitled to interfere if such error of law is apparent on the face of the award itself.'

9. We feel that we can advert to one English authority also in this connection with advantage. It is the case of London Export Corporation Ltd. v. Jubilee Coffee Roasting Co. Ltd., (1958) 1 All ER 494. There it has been observed as under:

'Where an arbitration agreement is silent as to the procedure, what attitude should the court adopt in seeking to imply terms? Obviously it does not imply terms which tend or appear to tend to an unjust award, but the court, particularly in commercial arbitrations, does not now, as perhaps once courts did, start on the assumption that the Parties except as otherwise expressly agreed, intended to adopt in its full rigour the procedure which, on long experience, helped by natural conservatism, has commended itself as most appropriate to the courts of law themselves'.

10. In view of the settled legal position and the sound reasons underlying them, it is difficult even for us to entertain the objections raised by Mr. Desai for the contractor applicant.

11. Mr. Desai, however, urged that under S. 29 of the Act, the contractor applicant should be awarded interest at the rate of 6% per annum by the court while giving decree on the basis of the award. As the matter has to go back to the trial court for taking further proceedings of drawing of the decree in the matter, we do not give any direction in that connection. It will be open to the contractor-applicant to move the court dealing with the matter for the appropriate relief regarding interest.

12. The result is that the appeal succeeds- The order of the trial court setting aside the award is quashed and the matter is remanded to the trial court for taking further proceedings of drawing the decree according to law, In view of the circumstances of the case, there will be no order as to costs of this appeal 12-3-1976.

In view of the appeal itself having been allowed the cross-objection did not survive.

13. Appeal Allowed.


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