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Hanutmull Boid Vs. Fatehchand Murlidhar - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberAward Case No. 158 of 1951
Judge
Reported inAIR1954Cal1,57CWN807
ActsArbitration Act, 1940 - Sections 14 and 30
AppellantHanutmull Boid
RespondentFatehchand Murlidhar
Appellant AdvocateA.K. Sen and ;S. Roy, Advs.
Respondent AdvocateB. Das and ;T.K. Ghose, Advs.
DispositionAppeal allowed
Cases ReferredBajranslal v. Ganesh Commercial Co.
Excerpt:
- s.r. das gupta, j.1. this is an appeal against an order of bachawat j. dismissing an application to set aside an award of the bengal chamber of commerce.2. by a contract no. 3641 dated 8-2-1946 the respondent fateh chand muralidhar sold 12 lacs yards of hessian cloth to s. debi dutt & co., delivery march to june, 1946. by a contract no. 3637 also dated 8-2-1946 the respondent sold 6 lacs yards of hessian cloth to section debi dutt & co., delivery april to june, 1946. by another contract no. 3637 also dated 8-2-1946 s. debi dutt & co. sold 6 lacs of hessian cloth to the appellant. by a contract no. 3662 dated 22-3-1946 the appellant sold back these goods to s. debi dutt & co. the last two contracts were set off against each other and the difference in price became payable by s. debi dutt &.....
Judgment:

S.R. Das Gupta, J.

1. This is an appeal against an order of Bachawat J. dismissing an application to set aside an award of the Bengal Chamber of Commerce.

2. By a contract No. 3641 dated 8-2-1946 the respondent Fateh Chand Muralidhar sold 12 lacs yards of Hessian cloth to S. Debi Dutt & Co., delivery March to June, 1946. By a contract No. 3637 also dated 8-2-1946 the respondent sold 6 lacs yards of Hessian cloth to Section Debi Dutt & Co., delivery April to June, 1946. By another Contract No. 3637 also dated 8-2-1946 S. Debi Dutt & Co. sold 6 lacs of Hessian cloth to the appellant. By a Contract No. 3662 dated 22-3-1946 the appellant sold back these goods to S. Debi Dutt & Co. The last two contracts were set off against each other and the difference in price became payable by S. Debi Dutt & Co. The respondent delivered to S. Debi Dutt & Co. the March portion of Contract No. 3641 on 25-3-1946 and the April portion thereof on 24-4-1946. The respondent entered into contract No. 155 dated 25-4-1946 and Contract No. 158 dated 29-4-1946 with the appellant through broker Sohonlal Hirawat. By the said contracts the respondent bought 2 lacs yards of Hessian and 4 lacs yards of Hessian respectively from the appellants. Both the said contracts contained the usual arbitration clause for reference of the disputes to the Bengal Chamber of Commerce. It is said that the said two contracts being contracts Nos. 155 and 158 were entered into by the respondent in order to enable it to implement its contract of sale No. 3637 to S. Debi Dutt & Co. The appellant asked the respondent to take delivery of the 2 lacs yards of Hessian under Contract No. 155 from S. Debi Dutt & Co. alleging that the said goods were deliverable by S. Debi Dutt & Co. under Contract No. 3637 and wrote a similar letter to S. Debi Dutt & Co. S. Debi Dutt & Co. denied that any goods were deliverable to the appellant and alleged that Contract No. 3637 was settled by Contract No. 3662. The respondent however delivered to S. Debi Dutt & Co. the April portion of Contract No. 3637 on 29-4-1946 and May portion thereof on 24-5-1946. The respondent by its letter dated 13-6-1946 demanded delivery of the outstanding goods from the appellant under contracts Nos. 155 and 158. The appellants pleaded inability to deliver the goods on the ground that they had not received the goods from S. Debi Dutt & Co.

3. In November 1946, S. Debi Dutt & Co. referred to the arbitration of the Bengal Chamber of Commerce their claim against the respondent for non-delivery of the goods under Contracts Nos. 3637 and 3641. There were protracted arbitration proceedings and eventually the said disputes were settled by payment of large sum of money by the respondent to S. Debi Dutt & Co.

4. On 21-3-1949 the respondent referred to the arbitration of Bengal Chamber of Commerce their claim under contract No. 155 against the petitioner for non-delivery and claimed Rs. 24,000/-. In their statement of claim filed before the arbitrators the respondent 'inter alia' pleaded as follows :

'We further beg to state that during the period of subsistence of the Jute Price Control Order when the black market flourished and goods became scarce in the open market a new custom sprang up in the Hessian Market in Calcutta well sponsored by the said Gunny Trades Association, the custom being that the due dates of delivery under unfulfilled contracts for purchase and/or sale of Hessian became and stood automatically extended until such time as the purchaser may allow or choose to wait unless in the meantime the goods are delivered or a settlement is reached.'

5. The appellant filed a statement in reply in which the appellant without submitting to the jurisdiction of the Arbitrators 'inter alia' alleged that there was no valid and/or legally enforceable contract but only an arrangement made for the sole purpose of withholding delivery of the goods in question from S. Debi Dutt & Co. Ltd.

6. On 24-5-1950 the arbitrators made their award which is as follows : 'We, the undersigned, having been duly constituted by the Registrar, Tribunal of Arbitration, Bengal Chamber of Commerce, as the Court to adjudicate on a dispute between Messrs. Fatehchand Murlidhar, buyers, and Messrs. Pannalal Sagarmal, sellers, regarding a claim made by the former on the latter for damages for failure to deliver 2,00,000 yds. Hessian cloth (valued at Rs. 56,000/-) under meSSRS. Sohanlal Hirawat's contract No. 155 dated 25-4-1946, have taken upon ourselves the duties of arbitrators, read and carefully considered the papers in the case, heard the oral evidence of the parties, and hereby decide on the merits and award as follows :

1. That there was no free market for these goods on the contract due date and the first market available thereafter was on 1-10-1946;

2. That Messrs. Pannalal Sagarmal shall pay to Messrs. Fatehchand Muralidhar in full settlement of their claim herein the sum of RS. 7,000/- (Rupees seven thousand only) together with interest thereon at the rate of 4 per cent per annum for six months only;

3. That Messrs. Pannalal Sagarmal shall pay to Messrs. Fatehchand Murlidhar the costs of this arbitration which we fix at Rs. 316/- and which are to be recovered by the Tribunal from the sum of Rs. 400/- deposited by Messrs. Fatehchand Murlidhar.' .

7. On 25-8-1950 the appellant made an application to this Court for an order (a) that the award be set aside, (b) for a declaration that the award was a nullity, (c) for costs, (d) such further or other orders as may be deemed fit and proper.

8. This application came up for hearing before Bachawat J. who dismissed the same with costs and passed judgment according to the said award. At the end of the judgment the learned counsel appearing for the appellant asked the learned Judge orally to allow him to amend the notice of motion by striking out the prayer (b) which was for a declaration that the award was a nullity. As the learned counsel appearing for the respondent did not object the learned Judge gave leave to amend the notice of motion by striking out the said prayer.

9. Against the said order of Bachawat J. dismissing the application of the appellants to set aside the award this appeal has been preferred.

10. Mr. Sen appearing on behalf of the appellant urged several grounds in support of his contention that this appeal should be allowed and that the award of the Bengal Chamber of Commerce should be set aside.

11. In the first place Mr. Sen contended before us that the arbitrators are guilty of misconduct, because, they decided matters which could not be decided by them and were totally outside the reference. Mr. Sen formulated his point in this way. One of the disputes between the parties was whether or not there was a contract; the case of the appellant being that there was only an arrangement and the arrangement was made for the sole purpose of withholding delivery of the goods in question from S. Dutt & Co., Ltd. and there was no contract made but only a fictitious contract number was furnished to the appellant. This dispute, Mr. Sen contended, the arbitrators had no jurisdiction to decide but the arbitrators did decide it. Therefore, the arbitrators are guilty of misconduct inasmuch as they decided matters wholly outside the scope of the reference.

12. In raising this contention Mr. Sen was faced with new difficulties. The result of his raising the said contention, namely, that there was no contract between the parties, was that the arbitrators could not decide anything and could not enter into the reference. For if a party to a contract challenges the very existence of the contract then the arbitrators become funcfus officio. In such a case the very jurisdiction of the arbitrators is challenged and the arbitrators cannot decide as to their ownjurisdiction. This proposition is well settle after the decision in - 'Heyban v. Darwins Ltd.', (1942) 1 All ER 337 (A). If in spite of such a dispute having been raised the arbitral tors proceed with the reference and make an award then the award would be a nullity having been made without jurisdiction. The question which would then arise is whether such an award can be challenged in an application under Section 30, Arbitration Act or whetherSection 33, Arbitration Act is the appropriate section under which the validity of an award made in such circumstances can be challenged. Mr. Sen's client did challenge the award on the ground that the arbitrators decided matters which were wholly outside the jurisdiction of the arbitrators. That being the position it may be contended and it was contended before us that the application was really an application under Section 33, Arbitration Act and the order of Bachawat J. was an order under the said section of the Arbitration Act It was further contended that as there was no appeal against an order made under Section 33 there can be no appeal against this order of Bachawat J.

13. Faced with this difficulty Mr. Sen tried to solve the same in these ways. He first of all contended that it is only when there is initial lack of jurisdiction i.e. where there is no valid reference that Section 33, Arbitration Act applies, but, in this case there is no initial lack of jurisdiction. Secondly he contended that it would none the less be a misconduct on the part of the arbitrators if in the reference they decide matters which are outside the reference and in such a case an application to set aside the award on those grounds would be an application under Section 30, Arbitration Act and the award can be set aside under the said section. Lastly Mr. Sen contended that if we come to the conclusion that this ground of Mr. Sen really appertains to Section 33, Arbitration Act then he would not press the same and he would be content to proceed on the footing that the arbitrators had jurisdiction to make the award but he would then urge that the said award should be set aside on other grounds, which appertain to Section 30, and to which I shall presently refer.

14. In my opinion having regard to the fact that this appeal can be satisfactorily disposed of on grounds other than those mentioned above it would not be necessary for us to express any opinion on the contentions raised by Mr. Sen as aforesaid and the consequences which followed therefrom.

15. The next ground urged by Mr, Sen in support of this appeal is that the arbitrators are guilty of misconduct because they awarded illegal and black market damages. Mr. Sen put forth his point of view in this way: The dates of delivery under both the said contracts were April, May and June, 1946 but the arbitrators awarded damages, as the award itself would show, on the basis of market rate on 1-10-1946. This Mr. Sen contended the arbitrators could not do. It is true he urged that the respondents in their statement of fact pleaded a custom but the nature of custom pleaded is such that the same cannot be within the special knowledge of the arbitrators. In other words, in order to decide the effect of that custom as pleaded upon the present contract some further facts have to be pleaded and evidence given in respect thereof which has not been done in this case. In the next place Mr. Sen urged that in any event the award on the face of it shows that the arbitrators did not rely on this custom but on the fact there was no free market on the contract due date and the first free market available thereafter was on 1-10-1946. In other words the award itself indicates the basis on which damages were awarded and that basis is wrong.

16. In my opinion these contentions of Mr. Sen should prevail and the award should be set aside on those grounds.

17. Bachawat J. did not accept these contentions and he relied on a decision of this High Court in -- 'Tolaram Nath Mull v. B'ilasrai & Co.', A. F. O. O. & D. Nos. 180 and 181 of 1949 (Cal) (B) and also on a decision of the learned Judge himself given in -- 'Bejoy Singh v. Bilasrai & Co.', : AIR1951Cal529 (C). As for the decision of the Court of Appeal in -- 'Tolaram's case (B)', the same to my mind is distinguishable from the present case. In that case the respondents in para 5 of their letter of reference 'inter alia' pleaded as follows :

'With a view to maintain the moral tone of the gunny market and to discourage black market, the Gunny Trades Association advised all members and others in the trade to consider all unfulfilled contracts whose dates fell within the period of Jute Price Control Order as extended till goods could be delivered or an amicable settlement reached.'

18. The respondents, in answer to the petitioner's statement of fact also filed a rejoinder and in para 4 thereof they pleaded as follows :

'It was with a view to checkmate the unscrupulous designs of such parties that the custom arose in the market that the due dates which fell within the control period's were to be taken automatically extended till the goods were delivered or amicably settled or till they were freely available. This custom has been fully sponsored by the Gunny Trades Association, Indian Jute Mills Association, Bengal Chamber of Commerce, Calcutta Jute Fabrics Shippers Association and hundreds of awards have been made by the learned Courts of Bengal Chamber of Commerce in such cases.'

The arbitrators in that case made an award the operative part of which was almost similar to the operative part of the award before us. An application was made to this Court for setting aside the said award which was dismissed by Sinha J. An appeal was preferred against the said order. Points urged before the Court of Appeal in that case were also similar to those urged before us by Mr. Sen. One of the points urged was that as the price on 1-10-1946 was treated as the market price on the due dates of the contract the arbitrators were deliberately taking into account black market rates at the dates of the breaches, because, on those dates the market was controlled and the maximum price was fixed.

It was also contended in the alternative that the award made it clear that the arbitrators awarded damages as arising on a date other than due date. These contentions were rejected not because they were basically unsound but because the respondents

'had expressly raised the issue that by trade custom or usage the due dates of performance of this contract had been extended.'

Harries C. J. who delivered judgment in that case observed as follows:

'If there had been no extension of the due dates, I think it would have been clear that the assessment of the damages on 1-10-1946 would be clearly bad and it might be said that the award showed on the face of it that damages were calculated in the wrong date.'

Thus it is clear that it was on the facts of the case as they were before their Lordships that the said decision was given. In other words it was on the custom as pleaded in that case as extending the due dates for the performance of the contract that their Lordships came to the conclusion that

'it was open to the arbitrators to come to a conclusion that by reason of trade usage the due date in this case was extended till 1-10-1946.'

But the custom pleaded in this case is different and it is not possible for the arbitrators in this case only by reason of the said custom without any other facts being pleaded and proved to come to a conclusion that the due dates were extended till 1-10-1946. In the case before us the custom pleaded by the respondent is as follows:

'We further beg to state that during the period of subsistence of the Jute Price Control Order when the black market flourished and goods became scarce in the open market a new custom sprang up in the Hessian Market in Calcutta well sponsored by the said Gunny Trades Association, the custom being that the due dates of delivery under unfulfilled contracts for purchase and/or sale of Hessian became and stood automatically extended until such time as the purchaser may allow or choose to wait unless in the meantime the goods are delivered or a settlement is reached.'

Apart from this there is another and more important point of difference between -- 'Tolaram's case' (B) and the present case. In --'Tolaram's case' (B) it was also urged on behalf of the appellants that the form of the award made it clear that the arbitrators could not have taken into account this custom or usage because the award itself on the face of it showed that it proceeded on the basis that the first free market was 1-10-1946 and the damages were assessed as on that date. In other words, the award itself showed that the arbitrators in awarding damages did not proceed on the basis of custom. This is also one of the contentions of Mr. Sen before us. This contention was negatived in -- 'Tolaram's case' (B) but for reasons which are not applicable to the present case. Their Lordships held that 'the award is quite consistent with their holding such a usage.' Their Lordships observed:

'In para. 1 they expressly stated that there was no free market for these goods on the due dates and that the first free market was; on 1-10-1946. In other words, they set out the facts which would immediately bring into operation the trade usage or custom alleged by respondent if such existed.....................However their award is quite consistent with their holding such a usage.'

These observations or reasonings cannot be applicable to the present case. In this case the custom pleaded was that the due dates of deli-very became and stood automatically extended until such time as the purchaser may allow or chose to wait. It is not a custom as pleaded in the other case namely, that the period would be extended till goods could be delivered in which case the award as given would have been quite consistent with such a custom.

In this case having regard to the nature of the custom pleaded find the terms of the award it is clear that the arbitrators could not havetaken into account this custom or usage and they did not proceed to make their award on: the basis of such custom. The award is on the basis that the first free market was on 1-10-1946 and the damages were assessed as on that date. The due dates were April, May and June 1946 and not 1-10-1946. The result therefore is that the arbitrators awarded damages as arising on a date other than the due dates. This the arbitrators could not do. As observed by Harries C. J. in the said case of -- 'Tolaram Nathmull v. Bilasrai & Co. (B)' :

'Their Lordships of the Privy Council have laid down 'that damages must be calculated as arising on the due dates.'

The said rates on which the damages were assessed also amount to black market rates. On the due dates of the contract the Jute Control Order was in existence and the price of jute was fixed. The Jute Control Order expired on 30-9-1946, and on 1-10-1946 there was no control. The damages awarded on the basis of the market rate on 1-10-1946 is far in excess of the controlled price. Thus the arbitrators awarded damages not at controlled rate but at black market rates and this the arbitrators could not do. As observed by Harries C. J. in the said -- 'Tolaram Nathmull's case' (B):

'This Court in a number of cases has held that if arbitrators take into account black market rates and not the controlled rate in assessing damages such amounts to a misconduct and the award is liable to be set aside.'

In my opinion therefore the contentions of Mr.Sen should prevail and the award should beset aside.

19. Mr. Das contended before us that what was stated in para. 1 of the operative part of the award was a mere statement of fact and the same has nothing to do with what is contained in para. 2 of the award. In other words he contends that it is by no means clear that what is alleged in para. 1 of the operative part of the award formed the basis for the damages awarded in para. 2 thereof. I cannot accept this contention. In my opinion para. 1 of the award should be read along with para. 2 thereof and what is contained in para. 1 was the basis for the damages contained in para. 2 thereof. I am supported in my view by the decision of the Court of Appeal in -- 'Bejoy Singh Karnwat v. Bilasroy & Co.', : AIR1952Cal440 (D) the very decision on which Bachawat J. relied. The award made in that case was similar in its terms to the one before us and it was also confendcd at the hearing of the appeal by the learned counsel appearing on behalf of the appellant that it would appear from Clause 1 of the award that the arbitrators have given damages on the basis of the rate prevailing on 1-10-1946. This contention was upheld by the Court of Appeal. Banerjee J. in delivering judgment observed as follows:

'On the face of the award it is clear that the arbitrators awarded damage's on the basis of the rate on 1-10-1946, as 'there was no free market available for these goods on the contract due dates of July. August, September 1946, and the first free market available (hereafter was on 1-10-1946' the arbitrators could not possibly give damages on such considerations.'

Mr. Das who also appeared on behalf of the respondents in that appeal raised the samecontentions which he raised before us namely that the Court would not be justified in taking into consideration para. 1 of the award as it was not an effective part of the award. The Court of Appeal did not accept this contention. Banerjee J. further observed as follows:

'In the case before us, we can ascertain that the award was necessarily based on the finding in para. 1. Paragraph 2 comes after para. 1 and gives the figure Rs. 5175/- as the difference between the contract rate and the rate prevailing on 1-10-1946

* * * In this case paragraph 1 is clearly wrong in law. I cannot see how we can say that this is no part of the award. The arbitrators have given damages on wrong basis. Therefore I think the award is bad on the face.'

These observations apply with equal force to the present case. In my opinion also the said award is bad on the face of it and should be set aside.

20. I have already indicated that the decision of Bachawat J. himself given in the case of --'Bejoy Singh Karnwat v. Bilasroy & Co.', (D), and on which he relied for the purpose of the present decision was upset by the Court of Appeal.

21. I shall now deal with the other contention of Mr. Sen namely, that although the respondent in his statement of fact pleaded custom but the nature of the custom pleaded was such that the same cannot be within the special knowledge of the arbitrators and ip order to determine the effect of the said custom on the facts of this case some further facts have to be pleaded and evidence given in respect thereof. Mr. Sen contended before us that it was necessary for the respondents to plead further in their said statement of fact the time which was allowed by the purchaser or up to which the purchaser in fact chose to wait to obtain delivery. In the absence of such averment and evidence to support the same the arbitrators could not possibly come to any decision on the basis of such custom. Because the custom as pleaded cannot be within the special knowledge of the arbitrators.

22. Against the said contentions of Mr. Sen, Mr. Das contended in the first place that the real implication of the custom pleaded was that the time would be extended until such time as the goods would be available and if that is so then this case is covered by the decision of -- 'Tolaram Nathmull v. Bilasrai & Co. (B)', on which Bachawat J, relied and to which I have already referred. I am unable to accept this contention. The averments in the statement of fact of the respondents as to the alleged custom is sufficiently clear and leave no room for ambiguity. It is clearly stated therein that because of the new custom which sprang up in the Hessian market the due dates of delivery became and stood automatically extended until such time as the purchaser may allow or chose to wait unless in the meantime the goods are delivered or a Settlement is reached. Thus the period up to which the due dates of delivery became and stood automatically extended as pleaded in the said statement was not until such time when the goods would be available as contended by Mr. Das but until such time as the purchaser may allow or chose to wait. That being so, in my opinion this contention of Mr. Das fails.

23. Mr. Das then contended that even if that be the position the award must be held to be valid. Because, he urged, there is a statement in the award itself that the arbitrators heard evidence and we cannot go beyond what is stated in the award and investigate as to whether or not in fact there was any evidence on the point as to the date up to which the purchaser was in this case prepared to wait. It may be, Mr. Das contended that there was evidence and the arbitrators were satisfied on such evidence that the point of time upto which the purchaser was prepared to wait was 1-10-1946 and the arbitrators awarded damages on that basis. Mr. Das further contended that the award would not be held to be bad merely because it did not mention that the period for delivery was extended up to 1-10-1946. This contention of Mr. Das does not also seem to me to be sound. In the first place it has not been pleaded that the purchaser did allow or chose to wait till 1-10-1946. This is a question of fact and Mr. Sen was right in his contention that the same had to be pleaded and evidence given in support thereof. As for the contention of Mr. Das namely that the award itself contains a statement that the arbitrators heard evidence and we cannot go beyond the same, in my opinion, the said statement can by no means be conclusive. Such a statement appears only in the recital portion and not in the operative part of the award and does not show on what point or points Such evidence was taken.

Apart from this I cannot see how such a statement can prevent a party from showing that in fact either no evidence whatsoever was taken or no evidence was taken on a particular point and the arbitrators were guilty of misconduct in making their award without such evidence. In this case apart from the fact that the pleadings do not contain any averment as to the period up to which the purchaser is said to have waited the records of the arbitration proceedings which have been produced before us do not show that any evidence was adduced on this point. The operative part of the award also negative's such a suggestion. It proceeds, as I have already said, on the basis of there being a free market on 1-10-1946 and not on the basis that the purchaser waited up to that date.

24. In this connection I would refer to the decision of the Court of Appeal given in 'Bajranslal v. Ganesh Commercial Co.', : AIR1951Cal78 (E). In that case also arbitrators awarded damages on the basis of rates prevailing on 1-10-1946 although the last date of delivery was 30-9-1946. It was contended in support of the award that the arbitrators must have held that the time for delivery was extended to 1-10-1946. In dealing with the said contention Harries C. J. observed as follows:

'In my view the arbitrators could not hold that the last date of delivery had been extended without some evidence. This was not the respondents' case and there is no suggestion in any of the documents which were placed before arbitrators that the time for delivery had been extended: Arbitrators who are experts in the trade can decide matters which are within their expert knowledge without evidence. But they cannot decide whether two parties have extended the time for delivery except on evidence, as such would not be a matter within their expert knowledge.'

Chatterjee J. observed as follows:

'If they held that there was extension, then they are equally guilty of legal misconduct because there was no evidence at all of any extension and no averment and no material to support the same.'

25. On a full and proper consideration of the matter I am of opinion that this part of Mr. Sen's contention must also succeed.

26. The result therefore is that this appeal is allowed. The order of Bachawat J. is set aside and the award made by the Bengal Chamber of Commerce being award No. 656 of 1950 and dated 24-5-1950 is also set aside. The appellant will get the costs of this appeal and also of the application before Bachawat J.

Chakravartti, C.J.

27. I agree.


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