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Penukonda Rathakrishnamurthy Vs. Balasubramania and Co. and ors. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtChennai
Decided On
Reported in(1948)2MLJ601
AppellantPenukonda Rathakrishnamurthy
RespondentBalasubramania and Co. and ors.
Cases ReferredCriminal Court. In Board of Trade v. Cayze
Excerpt:
- - the words or is otherwise invalid in section 30(c) of the act similarly would apply to very exceptional cases if for instance principles of natural justice had been violated by the award and in cases where it is found to be perverse and unconscionable. , held that the claim was clearly barred by limitation in view of the provisions of section 37(3) of the indian arbitration act, 1940. in my opinion, that section has no application whatever to this case. in the case of proceedings in court like a suit or an application, the explanation to section 3 of the limitation act declares that a suit is instituted, in ordinary cases, when the plaint is presented to the proper officer;.....' deemed to have commenced ' within the meaning of section 37(3) and to constitute the criterion date of limitation.6. section 37(3) reads as follows:for the purposes of this section and of the indian limitation act, 1908, an arbitration shall be deemed to be commenced when one party to the arbitration agreement serves on the other parties thereto a notice requiring the appointment of an arbitrator....two points immediately arise for determination in the present case.(1) what was the arbitration agreement?(2) who were the other parties thereto?the dispute was referred to arbitration under rule 4 of the bye-laws. mr. radhakrishniah for the respondent endeavoured to restrict the arbitration agreement in the present case to the two parties concerned in the dispute in order strictly to.....
Judgment:

Mack, J.

1. This is an appeal against the judgment of Kunhi Raman, J., on the Original Side in two petitions filed under the Arbitration Act, one to make the award a decree of the Court and the other to set it aside on the ground that the arbitrators had wrongly decided a point of law regarding limitation in holding that the claim of the appellant, P. Rathakrishnamurthy, was in time.

2. The facts are these : The appellant and Balasubramania & Co. (the first respondent) are both yarn merchants and members of the Madras Yarn Merchants' Association. They have admittedly subjected themselves as members to a set of arbitration bye-laws which have laid down a rather elaborate procedure for the reference of disputes arising between the members out of forward and other contracts to arbitration. Rule 4(a) of the Arbitration bye-laws is as follows:

In the forward (Vaida) F.O.R., or Ex-godown contract forms supplied by the Association, the following arbitration clause shall be inserted and it shall read thus: ' Any dispute arising out of this contract shall be referred to arbitration through the Madras Yarn Merchants' Association according to the rules that are in force or hereafter come in force.

3. Rule 5 prescribes the first step for the invocation of arbitration and runs as follows:

Any party to a dispute shall apply in writing to the Secretary of the Association filling up the form prescribed by the Association. Such application shall be accompanied by a plaint and necessary papers, letters and documents relating to the dispute along with a fee of Rs. 25.

4. It is common ground that under the provisions of Rule 5 the appellant filed a plaint in the office of the Secretary of the Association on 29th March, 1945, claiming Rs. 13,052-4-0 as damages from Balasubramania & Co., and nominated Sri T.N.K. Govindarajulu Chetty, the second respondent, as his arbitrator. It is also common ground that under Rule 7 notice was issued by the Secretary on 31st March, 1945, to the known address of Balasubramania & Co., as recorded in the association office. It was re-directed by the postal authorities and received only by the first respondent on 3rd April, 1945. He refused to nominate an arbitrator and filed O.P. No. 202 of 1945 in the High Court challenging the validity of the arbitration reference. He, however, subsequently withdrew this by consent and then nominated his own arbitrator, Beechar Bhai, the third respondent. The arbitrators passed an unanimous award giving the appellant a decree for Rs. 9,682-8-0 overruling a request by the first respondent to refer the point of limitation to the Court under Section 13(b) of the Arbitration Act. It is also common ground that the date of breach of the alleged contract was 31st March, 1942. The arbitrators held that as the appellant had invoked arbitration under Rule 5 by filing a plaint in the association office on 29th March, 1945, his claim was in time. A brief finding on this point in their award is as follows:

We hold that it is quite reasonable that the date of filing of the case in the Association shall be taken to determine the limitation.

5. The learned Judge took the view, however, that under Section 37(3) of the Arbitration Act, the criterion date for limitation was the date on which the first respondent was served with the notice through the Secretary. He held the claim to be time-barred and that there was an error of law on the face of the award which he accordingly set aside. As 1st April, 1945, was a Sunday there was a delay of one day according to the finding of the learned Judge, who for purposes of service applied Section 42 of the Arbitration Act, read with Section 27 of the General Clauses Act (X of 1897). It is not necessary to consider that portion of his judgment as I am of the opinion that assuming Section 37(3) applies to this case the arbitrators were correct in their finding of law that the invocation of the arbitration under Rule 5 of the arbitration bye-laws by the undisputed filing of a plaint on the 29th of March must be held to be the date on which the arbitration must be ' deemed to have commenced ' within the meaning of Section 37(3) and to constitute the criterion date of limitation.

6. Section 37(3) reads as follows:

For the purposes of this section and of the Indian Limitation Act, 1908, an arbitration shall be deemed to be commenced when one party to the arbitration agreement serves on the other parties thereto a notice requiring the appointment of an arbitrator....

Two points immediately arise for determination in the present case.

(1) What was the arbitration agreement?

(2) Who were the other parties thereto?

The dispute was referred to arbitration under Rule 4 of the bye-laws. Mr. Radhakrishniah for the respondent endeavoured to restrict the arbitration agreement in the present case to the two parties concerned in the dispute in order strictly to apply Section 37(3) to support his contention that it is service of notice on the first respondent which commences the arbitration and is the criterion date of limitation. The arbitration agreement in this case cannot however be restricted only to the two disputing members of the Yarn Merchants' Association, as in an ordinary arbitration agreement by which two persons in a case agree to refer any dispute arising for arbitration.

7. 'Arbitration agreement ' is defined in Section 2(a) of the Act as

a written agreement to submit present or future differences to arbitration, whether an arbitrator is named therein or not.

In Chaitram Ram Bilas v. Bridhichand Kesrichand I.L.R. (1915) Cal. 1140 in which a dispute was referred to-arbitration to the Bengal Chamber of Commerce, it was held that its Association rules were imported into the contract and were binding on the parties. I have no doubt that the arbitration agreement contemplated by Section 373) of the Arbitration Act in the present case is the entire set of arbitration bye-laws in which the specific arbitration clause in Rule 4 is embodied and which all the members of the association have bound themselves to follow. These rules prescribed certain procedure for the invocation of arbitration, namely, an application to the Secretary of the Association notifying the Association as a whole of the invocation of arbitration accompanied by a plaint, and the arbitration must be deemed to have commenced under Section 37(3) on that date. Mr. Radhakrishniah has stressed service ' on the other parties ' under Section 37(3) as being imperative but the other parties to the arbitration agreement are all the members of the association and not merely the two disputants themselves.

8. I am unable to accept Mr. Radhakrishniah's contention that under Section 37(3) the appellant had to see that the first respondent was served within the ordinary limitation period and that it was open to him, as we understood his argument, to serve the first respondent directly and quite independently of Rule 7 of the arbitration bye-laws to ensure that his claim was not time-barred. Had he sought to serve the first respondent direct he would have been adopting procedure in violation of the arbitration bye-laws of the association to which he had bound himself when he joined the association. There is another obvious infirmity if this contention is upheld, namely, that the appellant would place himself in a difficult position and run the risk of his claim being time-barred, if for any reason his application and plaint were bottled up by a slack and inefficient Secretary for several days without the issue of any notice to the other party affected. I 'have, therefore, no hesitation in finding, in disagreement with the learned Judge, and in agreement with the arbitrators that the plaintiff's claim was not time barred when he made his application accompanied by a plaint on the 29th March in the office of the Secretary. On this finding it follows that this appeal must succeed.

9. We have been taken during the arguments in this case, through several English decisions which the learned Judge has traversed in his judgment and the differentiation English Judge-made law has made in those cases. The position has been summed up in F.R. Absalom, Limited v. Great Western London Garden Village Society, Ltd. (1933) A.C. (H.L.) 592 a decision of the House of Lords which settled a conflict of judicial opinion arising out of the scope of such differentiation. The position in English law may be summed up in the words of Lord Russel of Killowen in this decision:

It is, I think, essential to keep the case where disputes are referred to an arbitrator in the decision of which a question of law becomes material distinct from the case in which a specific question of law has been referred to him for decision. I am not sure that the Court of Appeal has done so. The authorities make a clear distinction between these two cases, and, as they appear to me, they decide that in the former case the Court can interfere if and when any error of law appears on the face of the award, but that in the latter case no such interference is possible upon the ground that it so appears that the decision upon the question of law is an erroneous one.

We are not bound to follow that differentiation made in English Judge-made law which has led to much conflict of judicial decisions in interpreting the Indian Arbitration Act, by which we are bound. That Act makes no such differentiation. The only provision under which an award can be set aside is Section 30 where the arbitrator has misconducted himself, or when an award has been made after supersession of the arbitration or has become invalid under Section 35, or an award has been improperly procured or is otherwise invalid. It is very rarely that a specific point of law is referred to arbitration in this country. In the generality of cases the whole dispute is referred to arbitration and points of law naturally will arise for determination.

10. In Durga Prosad v. Anardevi 50 C.W.N. 880 a Bench of the Calcutta High Court exhaustively considered the differentiation made in English Judge-made law, and as I read that decision, it cuts a Gordian knot of complication by holding that a joint reference to arbitration of all outstanding matters in a suit was a reference to the arbitrators to decide all specific issues and that decisions by the arbitrators even though manifestly wrong cannot be challenged. It would be unduly complicating arbitrations in this country if we were to accept and attempt to apply the differentiation attempted? in English Judge-made law. The simple statute which we have to interpret and apply recognises no such differentiation, but gives Courts a very wide discretion to set aside an award if it has been improperly procured or is otherwise invalid. In fact, errors of law appearing on the face of the award are dealt with under a separate section (Section 16 of the Arbitration Act), by which the Court may from time to time remit the award for reconsideration inter alia where an objection to the legality of the award is apparent upon the face of it. The present case is one which is, on the basis of the learned Judge's finding, covered by Section 16(c) and the course contemplated by the Statute was a remission of the award to the arbitrators for reconsideration. The learned Judge did not, however, adopt this course as the arbitrators had discharged their duties and had become functus officio. His finding that the whole claim of the appellant was barred by limitation meant of course that the arbitrators, in case the award was remitted to them would have been left with no option but to dismiss the plaintiff's claim in toto. The learned Judge in fact must be deemed in the present case to have set aside the award only under Section 30(c) within the ambit of the words or is otherwise invalid. I am of the opinion that a mere error on a point of law whether specifically referred to the arbitrators or not will not by itself justify the Court setting aside the award.

11. There may be many cases in which the arbitrators though aware of the strict law on the subject may in order to do substantial justice on principles of equity decide to deviate from it. An example of this is furnished in Madepalli Venkataswami v. Madepalli Suranna (1917) 34 M.L.J 323 : I.L.R. 41 Mad. 1022. The plaintiff in that case was born blind and strictly not entitled to a share under Hindu Law. After the issues were framed the dispute was referred to arbitrators who awarded to the plaintiff a life interest in a one-fourth share. It was held that the award, the legality of which was questioned on this short ground, was not patently illegal as to come within the mischief of Clause (c), paragraph 14, Schedule II of the Code of Civil Procedure, corresponding to Section 16(c) of the Arbitration Act and could not be remitted for reconsideration. No hard and fast rule can be laid down as to the type of cases in which an award may be remitted under Section 16(c) or set aside under Section 30(c). All objections as to the legality of the award that is on the ground of any error in law appearing on the face of the award appear to be governed by Section 16(c) and not by Section 30(c). Even to justify a remission of the award on the ground of an illegality apparent on its face, it must, I think be one of such a nature as to permit of no argument, and to be patent on its face and if permitted to pass unrectified would do substantial injustice in both law and equity to the parties concerned. It is not sufficient that there should be merely an arguable case on a point of law determined by the arbitrators. The words or is otherwise invalid in Section 30(c) of the Act similarly would apply to very exceptional cases if for instance principles of natural justice had been violated by the award and in cases where it is found to be perverse and unconscionable. It is quite impossible to lay down all cases which can come within the scope of Section 30(e), nor am I endeavouring to do so.

12. In view of our finding that the arbitrators were correct in their finding on the question of limitation, the appeal is allowed with costs against the first respondent throughout, and same Advocate's fee as in the trial Court. The order of the learned Judge is set aside and there will instead be a decree in terms of the award.

P.V. Rajamannar, C.J.

13. I agree with my learned brother that the appeal must be allowed.

14. Kunhi Raman, J., held that the claim was clearly barred by limitation in view of the provisions of Section 37(3) of the Indian Arbitration Act, 1940. In my opinion, that section has no application whatever to this case. Obviously, it cannot apply to several arbitrations in which there would be no necessity for one party to the arbitration agreement serving on the other party any notice requiring the appointment of an arbitrator. Take, for instance, the case where there is a submission to arbitration duly signed by both the parties at the same time. It cannot be said in such a case that in spite of an agreed submission there should be service of notice by one party on the other. This position was conceded by Mr. Radhakrishniah, the learned advocate for the respondent. Section 37(3) must, in my view, be read with the provisions of Section 8 (1) which runs thus:

In any of the following cases--

(a) where an arbitration agreement provides that the reference shall be to one or more arbitrators to be appointed by consent of the parties, and all parties do not, after differences have arisen, concur in the appointment or appointments; or (A) if any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do not supply the vacancy; or (c) where the parties or the arbitrators are required to appoint an umpire and do not appoint him; any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy.

15. Now, what are the terms of the arbitration agreement in this case? Being members of the Madras Yarn Merchants' Association, both parties are bound by the Arbitration bye-laws of the Association. Under bye-law 4, every contract, either expressly shall include, or impliedly shall be deemed to include the following arbitration clause:

Any dispute arising out of this contract shall be' referred to arbitration through the Madras Yarn Merchants' Association according to the rules that are in force or hereafter come in force and not otherwise.

This by itself does not provide that the reference shall be to one or more arbitrators to be appointed by consent of parties. There is provision in the bye-laws even for a sole arbitrator who may be nominated by the president, or in his absence, the Secretary. I do not think that the notice sent by the secretary on receipt of an application for arbitration from any member under bye-law 7 is a notice falling within Section 8(1) or Section 37(3) of the Arbitration Act.

16. If Section 37(3) of the Arbitration Act does not apply, then the only other provision is that contained in Section 37(1) which is as follows:

All the provisions of the Indian Limitation Act, 1908, shall apply to arbitrations as they apply to proceedings in Court.

In the case of proceedings in Court like a suit or an application, the Explanation to Section 3 of the Limitation Act declares that

a suit is instituted, in ordinary cases, when the plaint is presented to the proper officer; in the case of a pauper, when his application for leave to sue as pauper is made; and in the case of claim against a company which is being wound up by the Court, when the claimant first sends in his claim to the official liquidator.

Obviously, this explanation does not directly apply to an arbitration. We are herefore constrained to apply the principles underlying this Explanation to arbitration proceedings. It is reasonable in doing so to hold that the date on which the arbitration proceedings can be deemed to commence must be taken to be the material date for computing time. Section 37(3), as already mentioned, provides for a particular contingency. In other cases, the date on which it can be said that a party has taken the first unequivocal step to obtain relief by arbitration is the material date corresponding to the date of filing of a plaint in Civil Court or a complaint in a Criminal Court. In Board of Trade v. Cayze, Irwine and Co. (1927) A.C. 610. Viscount Cave, L.C., in referring to Section 16 of the English Arbitration Act of 1889 which is practically identical with the provision in the Indian Arbitration Act, put the question thus:.but the only question which survives for your Lordships' determination to-day is whether the arbitrator should have found that the claim of the respondents was barred by the statute of limitation... by reason of the fact that the first step in the arbitration--namely, the appointment of the arbitrator--was not taken within six years after the date of the loss of the steamship.

17. This furnishes the right clue. If there appears from the facts of a particular case when the first step in the arbitration is taken, then the date of that step would be the material date.

18. The bye-laws make provision for any party to a dispute applying in writing to the secretary of the Association. Such application must be accompanied by a plaint and necessary documents relating to the disupte and a fee of Rs. 25. These provisions are binding on the parties who are members of the Association. The only way to initiate arbitration proceedings under these bye-laws is by the filing of an application in writing with the secretary of the Association. I think it reasonable to hold that the filing of such an application accompanied by the plaint is the first step in the arbitration under the bye-laws of the Madras Yarn Merchants' Association. It is a definite date, that is, the date of commencement of the arbitration proceedings. As the application in this case was made on 29th March, 1945, the claim was not barred by limitation even assuming that the date of the breach was 31st March, 1942. As the learned Judge set aside the award only on the ground that the claim was barred by limitation, it follows that the appeal must be allowed and the application filed by the respondent for setting aside the award must be dismissed with costs in the trial Court and here.

19. In this view, I think it unnecessary to express any opinion on the other questions argued before us.


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