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Financiers and Fibre Dealers Ltd. Vs. Sankarlal Sardar - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberAward No. 90 of 1959
Judge
Reported inAIR1961Cal46
ActsArbitration Act, 1940
AppellantFinanciers and Fibre Dealers Ltd.
RespondentSankarlal Sardar
Appellant AdvocateR.C. Deb, Adv.
Respondent AdvocateS. Das, Adv.
DispositionApplication dismissed
Cases Referred(Ghulam Khan v. Mahommed Hossain
Excerpt:
- .....the whole proceeding and the award must be adjudged a nullity. in his submission a reference in a pending suit can only be made by an order of the court under section 23 of the arbitration act & in the absence of such an order of reference, the arbitrator had no jurisdiction to enter upon the submission and make an award, even though there is an agreement for reference. the whole proceeding before the arbitrator, including the award, must in consequence be adjudged void as being a proceeding without jurisdiction under the indian arbitration act. this is the only point taken by mr. deb in support of his application to challenge the award.3. dr. das appearing to oppose the application disputed this contention of mr. deb. he further submitted that all parties, including the petitioner, not.....
Judgment:
ORDER

P.C. Mullick, J.

1. This is an application to challenge an award. It is prayed that either the award be adjudged void or set aside.

2. The facts relevent for this application are short and simple. A suit, being Suit No. 785 of 1958 was instituted by two of die parties to this proceeding in this Court against others on 29th/30th May, 1958. During the pendency of this suit, on June 23, 1938, the parties entered into a writer agreement, whereby the disputes in suit were agreed to be adjusted by arbitration of Srichand Bothra and the said suit was agreed to be withdrawn. Pursuant to this agreement, the disputes in suit were referred to the arbitration of Srichand Bothra, who acted under the reference, issued notice on July 3, 1958, and held a meeting on July 6, 1958, before the suit was withdrawn on July 7, 1958. Subsequent to the withdrawal of the suit, there were further proceedings and on August 26, 1958 the award was made. The important fact to note is that there was no order of reference under Section 23 of the Indian Arbitration Act. Mr. Rathin Deb learned Counsel appearing in support of this application contended that the absence of an order under Section 23 of the Arbitration Act vitiates the whole proceeding and the award must be adjudged a nullity. In his submission a reference in a pending suit can Only be made by an order of the Court under Section 23 of the Arbitration Act & in the absence of such an order of reference, the arbitrator had no jurisdiction to enter upon the submission and make an award, even though there is an agreement for reference. The whole proceeding before the arbitrator, including the award, must in consequence be adjudged void as being a proceeding without jurisdiction under the Indian Arbitration Act. This is the only point taken by Mr. Deb in support of his application to challenge the award.

3. Dr. Das appearing to oppose the application disputed this contention of Mr. Deb. He further submitted that all parties, including the petitioner, not merely accepted the award but the award has also been acted upon. If there was any irregularity, the petitioner waived it and he is estopped now from challenging the validity of the award.

4. The point raised by Mr. Deb is a point of first impression and is covered by no authority, English or Indian. The nearest authority is a decision of Bachawat, J. in the case of Jugaldas Damodar Modi and Co. v. Purushottam Umedbhai and Co., reported in : AIR1953Cal690 . In this case also the parties, during the pendency of the suit, entered into an agreement to refer the disputes in suit to arbitration. The parties further agreed to withdraw the suit and also obtained no order of reference under Section 23 of the Indian Arbitration Act. The arbitrator thereupon entered upon the submission, heard the case and made an award. The award was made, however, in the cited case while the suit was still pending and not withdrawn as agreed upon at the time when the agreement to refer was entered into. This is the only point on which the cited case differs from the instant case, namely, whereas in the cited case the award was made when the suit was still pending, in the instant case, though the reference was made and arbitration proceeding started when the suit was still pending, the award was made after the withdrawal of the suit. Bachawat, J. in a well-considered judgment, after an exhaustive review of the case law, both Indian and English including cases before the Arbitration Act of 1940, held that the award was a nullity. There are observations in the judgment on which Mr. Deb strongly relies. The observation is to the effect that the reference was illegal and without jurisdiction. Dr. Das, on the other hand, contended that the judgment must be read in the background of the facts of the case. He found observations in the judgment which tend to indicate that in the opinion of the learned Judge only when the agreement to refer the disputes was intended to be and/or in fact was still under the supervision of the Court, in that suit, a reference under Section 23 of the Indian Arbitration Act was imperative. The rule laid down was not intended to cover a case where the parties intended to carry on arbitration not under the supervision of the Court in pending suit but outside and for that purpose not merely agreed to withdraw the suit but also in fact withdrew the suit. It must be held that the judgment of Bachawat, J. in the above case is not a clinching authority. As stated before, the instant case is a case of first impression and no clear authority can be invoked by either side. The point has been argued with ability on either side and I record my appreciation of the assistance rendered by learned counsel on either side.

5. Can it be said that once a suit is instituted, the only way in which the disputes can be referred to arbitration is by an order of reference under Section 23 of the Indian Arbitration Act? If the parties intend to have the disputes adjusted by arbitration, without the supervision of the Court in that suit, they are competent to withdraw the Suit and then if the reference is made, there would be an arbitration without intervention of the Court under Chapter II of the Indian Arbitration Act. It has not been argued, as indeed it cannot be argued, that such a reference is incompetent in law. It follows that the parties are not deprived of the right to have their disputes adjusted by arbitration without the intervention of the Court under Chapter II of the Arbitration Act, merely because the jurisdiction of the Court has been invoked in that behalf. The parties can well refer the disputes in suit under Chapter II by first withdrawing the suit and making a reference thereafter. There is no question that this can be done. If that is so, why should the parties be legally incompetent to make the reference under Chapter II, even when the suit is pending, if they intend that the suit is to be withdrawn subsequently and in fact withdrew the suit before the arbitrator made his award? The right of the parties to make a reference under Chapter II can only be negatived if the disputes are intended to be determined by public tribunal which is in seisin of the disputes and kept in seisin of the disputes. It is only when the suit is kept on record that the parties must be held to retain the jurisdiction of the public tribunal and if in such event they intend to have the disputes adjusted by arbitration, they can only proceed under Chapter IV of the Act and an order of reference under Section 23 becomes imperative. In such an event, the Court in which the suit is pending retains full jurisdiction and control over the disputes and will not recognise any agreement to refer which has not received the sanction of the Court by an order of reference. In the reported case a point was taken that the agreement to refer a dispute to arbitration when a suit is pending for adjudication of dispute is illegal and hence unenforceable. Bachawat, J. negatived the contention and held that the agreement was perfectly valid. He however, held that when the dispute is still pending adjudication before a public tribunal, the Arbitration Act expressly provides in Section 23 that such agreement can be given effect to by an order of reference by the Court. It is the order of the Court under Section 23 and not the agreement that gives validity to the reference and the proceedings thereunder. The learned Judge observes at p. 693 of the report :

'It is only after the Order of reference that the jurisdiction of the Court to try the suit is arrested on the making of the order and not before. On the making of the order the Court cannot, save as provided for in the Arbitration Act, deal with the matter referred. It does not part with the duty of supervising the proceedings before the arbitrator Ram Protap v. Durga Prasad . The proceeding before the arbitrator from first to last is under its supervision and control, (Ghulam Khan v. Mahommed Hossain, 29 Ind App 51 (PC)) and is a substitute for the trial of the suit in open Court. The award must be filed in Court in which the suit was pending and that alone can deal with the award and pass judgment on it, (paragraph 17).

6. In the following paragraph (paragraph 18) the learned judge goes on :

'The agreement docs not give life and validity to the arbitration and award independently of the order of reference because the parties did not intend to arbitrate inrependently of the order the Court made on their joint application. They intended to go to arbitration under the supervision by the Court.'

7. In a case in which the parties not merely intended to arbitrate independently of the Court but actually gave effect to that intention by withdrawing the suit in which the subject matter of the arbitration agreement was in lis, the reason given of the invalidity or the arbitration proceeding loses all force. The arbitration agreement in respect to disputes in a pending suit has not been held to be void by Bachawat, J. It is a good agreement in law. After withdrawal of the suit, there can be no supervision by the Court of the arbitration proceedings. After withdrawal, the award cannot be filed in the suit itself. It cannot be said that the reference is void, because such a reference amounts to an ouster of the jurisdiction of the Court. Every reference to arbitration can be challenged on that ground, and I am not impressed by the argument that such an agreement while the Suit is still pending is against public policy. It has been well said that 'public policy' is a dangerous horse, difficult to ride, and I am not certainly going to invoke it and hold that the arbitration is void, on the ground that to uphold such an arbitration agreement amounts to ouster of the jurisdiction of the court. The correct way of looking at the question is that when a particular procedure is laid down in the Arbitration Act for reference in a pending suit, that procedure must be complied with. In a pending suit the procedure to be adopted is to have an order of reference under Chapter IV Section 23 of the Act. In such a case, the parties intend that an arbitration is to be carried on under the supervision of the Court and the award is to be filed in the suit itself. But the parties might intend that the subject-matter of the suit is to be adjusted independently without the supervision of the Court and there is an express agreement that the suit was to be withdrawn. In such a case, the authority of the arbitrator is derived from the agreement itself and the reference would be a good reference under Chapter II even though the suit is withdrawn after the reference and not before. In such a case all that can be said is that there is a mere irregularity in that the reference was made before and not after the withdrawal of the suit. In my judgment, such irregularity does not affect the jurisdiction of the arbitrator. The proceedings before the arbitrator, in any event, subsequent to the withdrawal, cannot be said to be irregular. The title irregularity in the arbitration proceedings, if any, before the withdrawal of the suit is a mere irregularity which must be held to have been cured by subsequent acquiescence. The reference or submission is not ab initio void and the reference is perfectly good in law. In my judgment, the parties arc competent to make a valid reference under Chapter II of the Arbitration Act of disputes in a pending suit, if they agreed to arbitration without the supervision of the Court and to withdraw the suit, even if the reference is made before the withdrawal of the suit. It would be enough in law that the award is made after the suit is withdrawn when proceedings to obtain judgment in terms of the award can be obtained not in the suit itself under Chapter IV but under Chapter II of the Act in an independent and new proceeding.

8. No other point has been taken by Mr. Deb to challenge the award.

9. Having regard to my above finding, the other points taken by Dr. Das challenging the right of the petitioner to contest the award need not be gone into.

10. In the result, the application fails and isdismissed with costs.


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