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N.K. Ahammed Vs. the Madras State Housing Board and anr. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtChennai High Court
Decided On
Reported in(1979)1MLJ185
AppellantN.K. Ahammed
RespondentThe Madras State Housing Board and anr.
Cases ReferredBombay High Court Phulchand Lakhminarayan v. The India United Mills Limited
Excerpt:
- .....for arbitration and on 6th april, 1970 he intimated the petitioner that he has made and signed an award on the arbitration petition preferred by the petitioner herein. the petitioner herein filed a petition under section 33 of the arbitration act, 1940 before x assistant judge, city civil court, madras, projecting his main grievance that no opportunity was given to him by the second respondent-arbitrator to put forth and substantiate his case and the principles of natural justice have been violated. the second respondent contended that as per clause 73 of the madras detailed standard specifications, which has been invoked and referred to in the agreement for governing the arbitration, he is not bound to hear and receive formal evidence, that on the basis of the records and statements.....
Judgment:
ORDER

S. Nainar Sundaram, J.

1. The petitioner in this revision was a party to an agreement with the first respondent herein. That agreement related to the supply of timber by the petitioner to the first respondent. Admittedly disputes arose with reference to the transactions under the agreement and the petitioner herein pursuant to the clause relating to reference to arbitration presented a petition for arbitration before the second respondent who was the arbitrator named in the agreement. It must be pointed out that the agreement between the parties refers to the Madras Detailed Standard Specifications to form part and parcel of the agreement. The second respondent did not fix any date for enquiry for adjudicating the matters referred to him for arbitration and on 6th April, 1970 he intimated the petitioner that he has made and signed an award on the arbitration petition preferred by the petitioner herein. The petitioner herein filed a petition under Section 33 of the Arbitration Act, 1940 before X Assistant Judge, City Civil Court, Madras, projecting his main grievance that no opportunity was given to him by the second respondent-arbitrator to put forth and substantiate his case and the principles of natural justice have been violated. The second respondent contended that as per Clause 73 of the Madras Detailed Standard Specifications, which has been invoked and referred to in the agreement for governing the arbitration, he is not bound to hear and receive formal evidence, that on the basis of the records and statements furnished by both the parties he has considered the matter and has passed the award and the award passed cannot be impeached on the grounds put forth by the petitioner. The Court below countenanced the pleas put forth by the second respondent and held that the second respondent arbitrator is not bound to follow the rules of judicial procedure and he has conformed to the procedure laid down in Clause 73 of the Madras Detailed Standard Specifications and the award of the second respondent cannot be set aside on the grounds urged by the petitioner. In this view the petition was dismissed. The present revision is directed against the orders of the Court below in O.P. No. 171 of 1971 which is the petition filed by the petitioner under Section 33 of the Arbitration Act, 1940.

2. Thiru K.T. Paulpandian, learned Counsel for the petitioner urges that the rules of judicial procedure cannot be deemed to have been excluded by virtue of Clause 73 of the Madras Detailed Standard Specifications, the arbitrator is given the role of a judge, to adjudge the dispute between the parties and it is not open to him to say that even without hearing the parties he can pass an award on the basis of the petition, counter-statement and the documents if any filed by the parties. There is force in the contentions put forth by the learned Counsel. The learned Counsel also refers to Section 13 of the Arbitration Act, 1940. In my opinion in the context it has no relevancy at all for the simple reason it merely states that unless a different intention is expressed in the agreement between or amongst the parties, the arbitrator shall have the powers enumerated thereunder. It does not relate to the procedure judicial or otherwise to be followed by the arbitrator. At the same time absence of prescription of the procedure cannot clothe the arbitrator with powers to be exercised arbitrarily and throwing to winds even the ordinary cannons of judicial procedure. May be, he is not a Court, but still he is in the position of a Judge, selected by the parties in whose sense of justice they have faith and who has to do justice between them. His procedure should therefore be such as a reasonable man would follow in deciding a dispute impartially.

3. Mr. K. Venkatasamy, learned Counsel appearing for the respondent relies on Clause 73 of the Madras Detailed Standard Specifications and submits that the said Clause lays down that the arbitrator shall not be bound to observe the ordinary rules of procedure applicable to trials before Judicial Tribunals, and he is not to hear or receive formal evidence but he may pass an award on the documents on statements of the case filed by both the parties and or on personal inspection. According to the learned Counsel for the respondent this is what has been done in the present case by the second respondent arbitrator and the petitioner could have no grievance on this question. I am unable to agree with this submission made by the learned Counsel for the respondent The relevant part of Clause 73 may be extracted for a convenient consideration of the same.

Either party may within a period, which shall be fixed by the arbitrator, file before the arbitrator a statement of the ease and also all the documents relating to or having a bearing on the case. The arbitrator shall see that the award is passed, if reasonably possible, within a period of four months from the date of his entering upon the reference, but if any extension of that period is considered by him to be necessary, either suo motu or on the application of either party to the reference, the parties hereby agree and consent to such extension as the arbitrator may from time to time consider reasonably necessary, and any such extension shall forthwith be communicated by him in writing to each of the parties hereto. The arbitrator shall not be bound to observe the ordinary rules of procedure applicable to trials before judicial Tribunals nor to hear or receive formal evidence but may pass an award on the documents on statements of the case filed by both parties and/or on personal inspection. The arbitrator shall have power to view the subject-matter of the dispute with or without the parties or their agents.

Even a bare reading of the same, does not convey, that the arbitrator functioning under Clause 73 of the Madras Detailed Standard Specifications can ignore the ordinary rules of judicial procedure with reference to putting the parties on notice of the statements and documents filed by the opposite parties. There is no expression used in the said clause which specifically excludes notice to the parties of the statements and documents filed by the| opposite parties. It contemplates that either party may within a period to be fixed by the arbitrator file before the arbitrator a statement of the case and also all the documents relating to or having a bearing on the case. It goes without saying, that the parties must know that statements and documents have been filed by the opposite parties. The Rule cannot be so construed as to exclude such an opportunity. Even if such a construction is possible on the said clause, it would be unreasonable and unfair to adhere to it and exclude such an opportunity being afforded to the parties to the arbitration. May be, the ordinary rules of procedure applicable to trials before judicial Tribunals can be said to be excluded. But, that does not mean that he should not even hear the parties and consider their explanations or submissions on the statements and documents if any produced by their opponents or by themselves. There is every possibility that ambiguities or doubts may arise with reference to the statements and the documents that may be filed by the parties and it would be very dangerous to say that the arbitrator can decide the questions involved and clear the ambiguities and the doubts by himself without even hearing the parties. Such could not be the import of Clause 73 of the Madras Detailed Standard Specifications. Even if such an import could be spelt out, in my opinion, it should not be given effect to on the facts of the present case for the simple reason it would be violative of the principles of natural justice to give effect to it. The principles of natural justice are not to be ruled out in every commercial arbitration, and for rendering those principles inapplicable, at least two things must co-exist. One is an express exclusion of those principles by a specific rule or a specific term in the contract of the parties and the other, that the dispute referred to the arbitration must be of such a| kind as is capable of being decided by the arbitrators fairly and honestly without the due observance of the rules of natural justice. Further, even in these limited cases where rules of natural justice would be said to have been excluded, if it appears that the arbitrator has not acted fairly or honestly or has acted in an arbitrary manner his award would be open to challenge on the ground of misconduct. To hold otherwise would be opening a door for the perpetration of fraud or rank injustice. Such was the view expressed by a Division Bench of the Bombay High Court Phulchand Lakhminarayan v. The India United Mills Limited : AIR1961Bom208 .

4. In the present case, the dispute referred to arbitration relates to the discharge of the obligations under an agreement to supply timber of the value of over Rs. 1,00,000. The petitioner herein admittedly issued a notice through his counsel on 30th October, 1968, complaining about the failure of the first respondent to honour the bills for the supplies made by the petitioner. There was a reply by the first respondent through its counsel on 16th December, 1968 whereby the claims of the petitioner were denied. It cannot be stated that the dispute in the present case is of such a nature as is capable of being decided by the arbitrator fairly and honestly without due observance of the rules of natural justice. As adverted to earlier the second respondent in his counter before the Court below would state that he passed the award with records and statements furnished by both the parties. There is no denial that copies of records and statements said to have been furnished by the parties, were not made available to the opposite parties. It is only in that context I am inclined to hold that even if Clause 73 of the Madras Detailed Standard Specifications I can be so construed as to exclude observance of the judicial procedure by the arbitrator, it shall not be implemented on the facts of the present case because such an implementation will cause prejudice to the parties and will not secure the ends of justice.

5. One of the elementary principles is that the arbitrator must not receive information from one side which is not disclosed to the other, whether information is given orally or in the shape of documents though the rule has sometimes been ignored by mercantile arbitrators whose awards have on this ground been set aside. As stated above, in the present case, the petitioner has not been put on notice of the statements and records said to have been filed by the first respondent, and he has not been called upon to offer his explanation over them. This will not be a proper consideration of the questions concerned in the course of arbitration proceedings. I find that the Court below has failed to consider the matter from the proper perspective and has chosen to rely on Clause 73 of the Madras Detailed Standard Specifications to negative the case of the petitioner. I find that the award of the arbitrator cannot be sustained for the reason that the arbitrator has not given notice to the petitioner herein of the statements or records said to have been filed by the first respondent and has not even called upon the petitioner to offer his explanations or objections to the same. For the above reasons, I am inclined to interfere in revision and hence, this revision is allowed and the award of the second respondent is set aside and the matter is remitted back to the second respondent for consideration of the same afresh. The second respondent will furnish the parties at their expense copies of the statements and records, filed by their opposite parties, if that is practicable or if that is not practicable, afford them an opportunity to peruse them at the office of the arbitrator. The arbitrator will further give the parties reasonable opportunity to offer their explanations and submissions ii writing over such statements and records and the parties so desire, will hear them on all the questions concerned and then decide the matter in accordance with law. There will be no order as to costs in this revision.


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