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Nathmull Tolaram Vs. Killa and Co. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberAward No. 138 of 1958
Judge
Reported inAIR1961Cal65
ActsArbitration Act, 1940 - Sections 8(1) and 30; ;Evidence Act, 1872 - Section 115
AppellantNathmull Tolaram
RespondentKilla and Co.
Appellant AdvocateAjit Sarkar and ;R.N. Pyne, Advs.
Respondent AdvocateA.C. Bhabra, Adv.
Cases Referred and Juggilal Kamlapat v. General Fiber Dealers Ltd.
Excerpt:
- h.k. bose, j. 1. this is an application for determination of the validity of an award dated 13-2-1958 and for declaration that the award is null and void and also for setting aside of the said award.2. the petitioner's case is that it had various dealings and transactions with the respondents and in respect of certain dealings disputes and differences arose between the parties. by an agreement dated 16-12-1957, the petitioner and the respondent referred all their disputes and differences to the arbitration of two named arbitrators, namely, sri kishorilal dhandhania and sri madanlal pandya. the said agreement was submitted to the arbitrators on the very next day but the arbitrators did not call upon the parties to submit any statement before them and no meeting was called nor any reference.....
Judgment:

H.K. Bose, J.

1. This is an application for determination of the validity of an award dated 13-2-1958 and for declaration that the award is null and void and also for setting aside of the said award.

2. The petitioner's case is that it had various dealings and transactions with the respondents and in respect of certain dealings disputes and differences arose between the parties. By an agreement dated 16-12-1957, the petitioner and the respondent referred all their disputes and differences to the arbitration of two named arbitrators, namely, Sri Kishorilal Dhandhania and Sri Madanlal Pandya. The said agreement was submitted to the arbitrators on the very next day but the arbitrators did not call upon the parties to submit any statement before them and no meeting was called nor any reference was held by the arbitrators during the whole of January 1958. In or about 1-2-1958, the petitioner received a notice from the arbitrators which did not bear any date but which intimated that a meeting of the reference would be held by the arbitrators on 4-2-1958. The petitioner being unable to attend the meeting to be held on 4th of February, intimated the arbitrators its inability to attend the same but the petitioner sent its representative Ganpatlal Mandhani to Calcutta on 9-2-1958 and this Representative attended the meeting of the said reference held on 10-2-1958 and he also attended another meeting alleged to have been held on 15-2-1958 when the arbitrators closed the reference and stated that they would make their award after some time. On or about 17-3-1958, the petitioner received a letter from the arbitrators dated 14-3-1958 along with which a copy of the award made by the arbitrators had been enclosed. This award directed the petitioner to pay a total sum of Rs. 72,000/- to the respondent with interest at 9 per cent, per annum from 14-2-1958 until realisation and it also provided that, if the said amount was paid by the petitioner within two months, the respondent would accept the said sum in full settlement and would not be entitled to charge any interest. It is alleged in the petition that after receipt of the copy of the award the petitioner did not inadvertently notice the date of the award and a payment of a sum of Rs. 12,000/-was made to the respondent a few days thereafter by mistake. Subsequently, in September 1958, the petitioner made the discovery that the award had been made beyond time and as such was void and inoperative and that the arbitrators had back-dated the award as having been made on 13-2-1958. It is further alleged in the petition that although it was incumbent upon the arbitrators to appoint an umpire before proceeding with the reference and the appointment of the umpire was a condition precedent to the arbitrators entering on the reference, no such appointment of umpire had in fact been made and therefore the proceedings before the arbitrators were vitiated inasmuch as the alleged tribunal which purported to determine the disputes and make the award had not been properly constituted.

3. The first ground urged on behalf of the petitioner is that the award was made beyond the period fixed by the arbitration agreement. As I have pointed out already, the case made in the petition is that the arbitration agreement was served on the arbitrators on 17-12-1957, but the arbitrators did not enter on the reference till about 1-2-1958 when they issued a notice intimating that a meeting would be held on 4-2-1958 (paragraph 4 of the petition). In paragraph 5 of the petition, the further case made is that the petitioner's representative Ganpatlal Mandhani attended meeting of the reference on 10-2-1958 and another meeting which was held on 15-2-1958 and which was the last meeting of the reference. It is submitted that as under the arbitration agreement the arbitrators were to make their award within one month from the date of the reference, the award should have been made within one month from 17-12-1957 and so the award which was made on 13-2-1958, assuming that it was made on that date, was beyond time and so the award was invalid. The case of the respondent, on the other hand, is that the copy of the arbitration agreement was served on the arbitrators on 14-1-1958. The copies of the two letters of 14-1-1958 are annexed to the affidavit in opposition and another undated letter is also annexed to the affidavit in opposition showing that the arbitrators gave notice of holding a meeting on 4-2-1958 and called upon the parties to be present with their witnesses and documents. If the case of the petitioner had been true, then it would be natural to expect that they would raise this point about the arbitrators becoming functus, officio on 10-2-1958 when the petitioner's representative admittedly attended the meeting of the arbitrators. He would have pointed out that the arbitration agreement having been served upon the arbitration on 17-12-1957, the period of one month bad already expired and, in the absence of any extension made the arbitrators could not function at all. But no such protest appears to have been made at the said meeting.

4. Moreover, beyond a bare allegation in the petition that on 17-12-1957 the copy of the arbitration agreement was served on the arbitrators no document or any peon book entry or letter is forthcoming to show that the arbitration agreement was in fact served on the arbitrators on 17-12-1957. If, in fact, the arbitration agreement had been served on the arbitrators on 17-12-1957, it is improbable that the arbitrators would keep quiet and would not take steps to eater on the reference till 1-2-1958 knowing full well that speedy determination of the dispute was required under the arbitration agreement and one month's time had been fixed as the time for making the award. So I am inclined to accept the case of the respondent as true. It appears to me that the arbitrators were served with the arbitration agreement on or about 14-2-1958.

5. The fact that the arbitrators made their award on 13-2-1958 is also disputed by the petitioner. It is pointed out that if, in fact, the award had been made on 13-2-1958, the arbitrators would have forwarded a copy of the award to the petitioner shortly after 13-2-1958, but in fact such copy of the award was not forwarded till 14-3-1958.

6. Mr. Ajit Sarkar has pointed out that the award having fixed a period of two months for payment of the amount awarded, it would have been normal for the arbitrators to forward a copy of the award to the petitioner immediately after the making of the award so that the petitioner might know about the contents of the award and the petitioner would be in a position to carry out the directions contained in the award within the time fixed by the award. One would not expect that the arbitrators would keep back the award till 14-3-1958. It however, appears from the annexure to the affidavit-in-opposition that on 13-2-1958 the arbitrators had written a letter intimating that they had made an award on that date. The petitioner's case of course is that no such letter was written and he got no such letter from the arbitrators. But the letter of the 14th of March 1958 along with which a copy of the award was admittedly sent to the petitioner also mentions the fact that the award was made on 13-2-1958. The petitioner does not appear to have pointed out at any stage in any correspondence that the award was not made on 13-2-1958 and could not be so made as the last meeting of the reference had, according to the petitioner, taken place on the 15th February 1958. On the other hand, the petitioner appears to have paid a sum of Rs. 12,000/- towards the implementation of the award. I, therefore, hold that the award was made on 13th February 1958 and was within time.

7. The next point urged by Mr. Sarkar is that the appointment of an umpire by the arbitrators was a condition precedent to the arbitrators proceeding with the reference and as no umpire was at any time appointed, the proceedings which took place before the arbitrators and the award made by them were invalid.

8. It is necessary for the purpose of determination of this contention to refer to the relevant portions of the arbitration agreement dated 16-12-1957. After setting out the facts that disputes and differences had arisen between the parties and for the purpose of amicable and speedy settlement the parties had agreed to refer all their disputes and differences to the arbitration of two gentlemen whose names are given in the arbitration agreement, the agreement proceeded to state as follows:

'Now this agreement witnesseth that the Parties hereto have agreed to the following terms and conditions'.

Thereafter the different terms and conditions are set out in the body of the agreement. Clause 1 of the agreement provides that all the disputes and differences between the parties are referred to the arbitration of the two named arbitrators. In Clause 2, the powers of the arbitrators are enumerated in six different sub-clauses. Thereafter in Clause 3 it is provided as follows:

'The arbitrators, before proceeding with the reference, shall appoint an umpire'.

Clause 4 is in these words:

'In case of there being any difference between the said arbitrators they will refer the matter to the umpire so appointed by the said arbitrators as aforesaid and the said umpire shall have all the powers as stated above save and except that such umpire shall make his final award within a period of one month from the date the matter will be referred to him'.

Clause 5 may also be set out hereunder:-

'The decision of the said arbitrators and/or umpire as the case may be shall be final and binding on all the parties thereto and none of the parties hereto shall challenge the same on any ground whatsoever'.

9. Mr. Sarkar, the learned Counsel appearing for the petitioner, has contended that it should be held upon a construction of this arbitration agreement that the provision as to appointment of an umpire by the arbitrators before they proceed with the reference is a condition precedent which has to be fulfilled by the arbitrators before they can have any jurisdiction to proceed with the reference and any omission on the part of the arbitrators or failure on the part of the arbitrators to appoint an umpire will render the proceedings which take place before the arbitrators altogether null and void as being without jurisdiction. In support of this argument reference has been made to a decision of this Court in Choonilal v. Madhoram 13 Cal WN 297. This was an application for an order that an award made by the Bengal Chamber of Commerce might be fifed in court and a decree be Passed thereon for judgment in accordance with the terms of the award. A point was raised before the learned Judge, in opposition to this application, that inasmuch as the Registrar of the Bengal Chamber of Commerce had failed to appoint an umpire according to the arbitration rules of the Bengal Chamber of Commerce, the arbitral tribunal had not been duly constituted. It was argued by the learned Counsel for the respondent that the appointment of an umpire was a condition precedent to the arbitrators entering on the reference and the Tribunal of Arbitration was not fully and properly constituted till the umpire had been appointed and all the proceedings had been irregular throughout. Reliance was placed on the case of Bright v. Durnell, (1836) 4 Dowl 756 and the case of Bates v. Townley (1847) 1 Ex 572., The learned Judge dealing with this case of (1836) 4 Dowl 756 Bright v. Durnell made the following observations :-

'In the case of (1836) 4 Dowl 756 the terms of the reference provided that the dispute was to be referred to the arbitration of two persons, oneto be chosen by each who were to appoint an umpire, before they commenced proceedings'. Thearbitrators not being able to agree on the appoint-ment of an umpire, one of the parties to the re-ference commenced proceedings in Court againstthe other party. The other party obtained a Rule nisi calling on the party who had instituted the proceedings to show cause why the proceedings should not be stayed as the parties had agreed to refer the dispute to arbitration. The Court discharged the Rule and Parke B. in giving his judgment made the following pertinent remarks:-

'If the umpire is not appointed, how can wecompel the arbitrators to appoint one? and until heis appointed, the reference cannot go on. It appears to me to Ge a condition precedent that an umpire be appointed'. It is obvious that it can make no difference whether the umpire is to be appointed by the arbitrators or by a third party. If the terms of the reference provided that the umpire is to be appointed before the arbitrators enter upon the reference, the reference cannot go on until the umpire is appointed.

As I have already stated, I hold that it is incumbent on the Registrar, when he appoints two arbitrators on the receipt of an application for arbitration under Rule 6, to appoint also an umpire. This application, therefore, fails and must be dismissed with costs'.

10. This case came up for consideration in a later decision of this Court reported in Bombay Co. Ltd. v. National Jute Mills Ltd., ILR 39 Cal 669. Chitty, J. in dealing with the case reported in Chunilal's case 13 Cal WN 297 made certain observations at p. 680 of the Report which have the tiffed of considerably weakening the case decided by Flelchcr, J., but the learned judge made certain observations at p. 679 with regard to clauses in arbitration agreements which make provision for appointment of an umpire before entering on the reference,which are very pertinent on the question which has been raised before me for consideration in the present case. The relevant observations may be set out hereunder:-

'The necessity which usually arises for arbitrators to nominate an umpire to adjudicate in the event of their disagreement before entering upon the reference does not exist in arbitrations under the Bengal Chamber of Commerce Rules. Ordinarily, it would be difficult, if not impossible, for arbitrators nominated by the parties themselves, who have disagreed on the matters referred, to agree upon a person whose umpirage they could accept. This is why the condition of nomination before entering on the reference is so frequently inserted in agreements to refer. In arbitration under these rules, it is the Registrar who nominates both Arbitrators and umpire and generally acts as a go-between between the Tribunal on the one side and the parties on the other. It may be noted that by provision 2 of Schedule I to the Arbitration Act, twoarbitrators may appoint an umpire at any time within the period during which they have power to make an award. By Rule 8(q) the Act, so far as its provisions are not inconsistent with the rules, applies to all references to the Tribunal. It must be clear, therefore, that the rules strictly require the umpire to be nominated before the arbitrators enter uponthe reference. They certainly do so in such clear and unmistakable terms as appear in the case of (1836) 4 Dowl 736 and that, in my opinion, is sufficient to distinguish that case from the present'.

11. It is thus clear from the observations of Chitty, J. that the Rules of the Arbitration of the Bengal Chamber of Commerce did not contain any rule for appointment of an umpire before entering upon the reference which was as definite and as imperative as is to be found in the provision for nomination of an umpire in the Arbitration agreement which was the subject-matter of consideration in the case of (1836) 4 Dowl 756. It is also clear from the remarks of Chitty J. at p. 679 that when there is a clear and definite provision contained in art arbitration agreement for appointment of an umpire before entering upon the reference, it is necessary for the arbitrators to nominate an umpire before they enter upon the reference. And the difficulty which is involved in not complying with this provision for appointment of an umpire before entering upon the reference is also pointed out by the learned Judge in very clear language.

12. In a recent case decided by the BombayHigh Court and reported in Vinayak Vishnu v. B. G.Gadre, : AIR1959Bom39 Mudholkar J. had to construe an agreement of a similar nature which is nowbefore me for consideration, although the wordingsof that clause were not identical with the wordsbefore me. There the relevant clause was to thefollowing effect:-

'You, arbitrators, 'are authorised to nominate a third person to act as final arbitrator or umpire in case there is difference of opinion between you and such nomination of an umpire should be made by you both before you proceed to start enquiry'.

The learned Judge in construing this clause held that where there is an express term in the agreement for arbitration to the effect that arbitrators shall appoint an umpire before entering upon the reference, the provisions of Clause 2 of the First Schedule of the Arbitration Act, 1940, will not be attracted and the matter would be governed only by that term. The learned Judge in coming to the conclusion observed that -

'An arbitrator derives his authority from the reference which furnishes the scope and prescribes the limits of jurisdiction. He is therefore, to make an award in conformity with the reference, both in substance and in form. Thus, where it is one of the conditions of the reference, that before entering upon it the arbitrators shall appoint an umpire, then that condition must be satisfied by the arbitrators before they enter upon, their duty. If the condition is not satisfied, the award given by the arbitrators is invalid'.

The learned Judge in coming to the conclusion relied on the decision in Chunilal's case, ILR 36 Cal 388 : 13 Cal WN 207. But it may be pointed out that the attention of the learned Judge was not drawn to the case reported in ILR 39 Cal 669 and though Tikaram Khupchand v. Hansraj Hazarimal, AIR 1954 Nag 241 was placed before him his attention does not appear to have been pointedly drawn to a decision of the Sind Judicial Commissioner's Court which is reported in Louis Drayfus and Co. v. Hemandas Hotchand, AIR 1940 Sind 37 in which Weston J. after construing the relevant clause withregard to the appointment of an umpire and after considering the English case of (1836) 4 Dowl 756 and the Calcutta decisions reported in ILR 36 Cal 388 and ILR 39 Cal 669 came to the conclusion that the omission to appoint an umpire before the arbitrators entered upon the submission did not vitiate the proceeding or the award made, specially when the arbitrators had not disagreed with regard to the matters referred to them and when the necessity for appointment of an umpire had not been established. The clause which was the subject-matter of consideration in the Sind case was to the following effect:

'The arbitrators shall within three days after their appointment and before entering upon the business of the said reference appoint an umpire in writing to whom the matters in dispute shall be referred. If the arbitrators disagreed and if they failed to appoint an umpire within the said Period, then the Chairman or the Acting Chairman for the time being of the Karachi Chamber of Commerce shall appoint the said umpire. The arbitrators and umpire acting under his presence shall be deemed to be a submission to arbitration within the Provisions of the said Act'.

So it will be seen from the clause sot out above that the conditions of appointment had not been expressed in similar terms as are to be found in the arbitration agreement which is before me for consideration. Furthermore, the contention that was raised before the learned Judge was whether the failure by the arbitrators to appoint an umpire amounted to legal misconduct so as to vitiate the whole award. The learned Judge observed that -

'In a case where the arbitrators disagreed on the matters referred to them and the necessity for an umpire became established, it may well be that the omission of the arbitrators to appoint an umpire before they entered upon the submission would be fatal to the whole proceedings. But, when, as in the present case no disagreement between the arbitrators occurred it is difficult to see why the omission of the arbitrators to provide for a contingency which in fact did not arise would vitiate their proceedings. Even on the interpretation urged by respondent No. 2, I think, the direction to appoint an umpire should be regarded as directory and not as mandatory and I hold that in the present case the omission to make the appointment is not a defect amounting to legal misconduct on the part of the arbitrators and sufficient to vitiate the award made'.

13. Although this is the view which has been expressed by Weston, J., it appears to me, upon construction of Clause 3 of the Arbitration Agreement dated 16-12-1957 which is a separate and independent clause in the agreement, that it was the intention of the parties that the appointment of the umpire would be a condition precedent before the arbitrators would have the right or jurisdiction to proceed with the reference in respect of the disputes which had been referred to their arbitrations. The arbitrators derive their authority and jurisdiction to arbitrate on the matters referred to them from this agreement dated 16-12-1957, and this jurisdiction or authority of the arbitrators was dependent upon the Conditions and the terms by which their power to arbitrate had been circumscribed. In my view, it was incumbent uponthe arbitrators to appoint an umpire before proceeding with the reference and the failure to make the appointment rendered the proceedings of the arbitration and the award invalid.

14. The attention of the Court was also drawn to a decision of the Nagpur High Court reported in AIR 1954 Nag 241. In this case. Schedule 1, Clause 2 of the Arbitration Act, 1940, was considered and it was held that the clause was directory in characterand failure to appoint an umpire in terms of this clause did not vitiate the award, specially when no breach is caused by the omission to appoint an umpire. The Court thought that the insertion of Section 8(1)(c) in the Arbitration Act, 1940, gives further indication that non-compliance with Clause 2 of Schedule I of the Act of 1940 does not invalidate the award and that the clause is not mandatory in character (paragraphs 12 to 21 of the judgment). Reference was also made in this case of the Nagpur High Court to AIR 1940 Sind 37 at p. 40. In course of argument Mr. Bhabra also referred to the decision of P. B. Mukharji, J., reported in United Printing and Binding Works Ltd. v. Kishori Lal, : AIR1956Cal593 . In this case also the learned Judge had to construe Clause 2 of Schedule I of the Act of 1940 and he held that the clause was not mandatory in character and its breach did not vitiate the award. The learned Judge observed that a failure to appoint an umpire in terms of Clause 2 of Schedule 1 of the Act is a breach which can be cured by parties taking steps under Section 8(1) of the Act of 1940, and if a party fails to follow the procedure permitted by statute to remedy the breach and stands by till the award is made, he cannot put forward non-appointment of the umpire as a ground for setting aside the award (paragraphs 5 to 12 of the judgment).

15. A similar construction as to Clause 2 of Schedule I being only directory in character has been put by the Punjab High Court in a case reported in Union of India v. Allied Trading Co., which was cited by Mr. Bhabra in the course of his argument.

16. A question was raised in the course of the hearing before me whether the petitioner is Prevented by the operation of the doctrine of acquiesence, estoppel or waiver, from raising this question about the invalidity of the award on the ground that the umpire was not appointed by the arbitrators in accordance with the arbitration agreement before proceeding with the reference in respect of the disputes referred to them, and as there were conflicting statements in the affidavits filed by respective parties. I directed a trial on evidence limited to the point as to when the petitioner came to know the fact that the umpire had not been appointed by the arbitrators in accordance with the agreement. The Manager of the petitioner, Ganpatlal Mandhani, has deposed before this Court and he has stated that it was after he got the notice of the filing of the award under Section 14(2) of the Arbitration Act that he came to Calcutta and approached his solicitor Mr. Latit Mohon Banerjee. Mr. Banerjee pointed out to him for the first that the papers placed before him did not show that any umpire had been appointed and asked him to make enquiry about this matter and to ascertain the correct position. Upon that he had seen the two arbitrators and in course of conversation with them he gathered that no umpire had beenappointed. This information he acquired some time in September 1958, that is to say, long after the award was made and long after the petitioner had paid a sum of Rs. 12,000/- in part payment of the amount directed to be payable by it under the award. Mr. Banerjee has also given evidence before this Court and he has supported the evidence given by Mandhani.

17. On behalf of the respondent Madanlal Pandya, who was one of the arbitrators in the case, has been called and he has suggested that at the very first sitting of the reference which was held on 4-2-1958, the arbitrators had decided not to appoint an umpire and Ganpatlal Mandhani who appeared on behalf of Nathumull Tolaram, and Bhanwarlal Killa who appeared on behalf of Killa and Co., were present at such meeting and they had knowledge of the decision which had been taken by the arbitrators at that first meeting.

18. I find it difficult, however, to accept this evidence of the arbitrator. It appears to me that if this testimony of the arbitrator had been true, one would expect that Bhawarilal Killa who had affirmed the affidavit-in-opposition and who was present at the first meeting would mention this fact in his affidavit-in-opposition. But not only he has not referred to this fact at all in the affidavit but curiously enough, the case made in the affidavit-in-opposition in paragraphs 12 and 13 is that the deponent was not aware whether the arbitrators had appointed an umpire or not. This clearly goes to show that no such decision as is alleged to have been taken by the arbitrators at the first meeting of the reference had in fact been made. The arbitrator hag admitted in course of his evidence that the manager Ganpatlal Mandhani had seen him on two or three occasions after the award had been made, but he cannot recollect whether he had any talk with the manager about the award on any of these occasions. The arbitrator appeared to me to avoid giving straight answers with regard to some of the questions which had been Put to him and I am inclined to accept the evidence of the manager of the petitioner firm and of the solicitor Mr. Banerji in preference to the evidence of the arbitrator. I hold that the petitioner came to know of the fact of non-appointment of the umpire in September 1958 or shortly thereafter. There can, therefore, be no question of any waiver on the part of the petitioner With regard to the defect as to the non-appointment of the umpire or with regard to the petitioner not taking any steps under Section 8(1)(c) of the Arbitration Act in this case. In order that there may be waiver the party waiving must have knowledge of the rights which he waives. There are numerous cases both Indian and English to support the proposition that a Person cannot be held bound by any waiver unless he is aware of what exactly he is waiving and what rights he is giving up.

19. A waiver is an intentional relinquishment of a known right or such conduct as warrants an Inference of the relinquishment of such right.

20. Mr. Bhabra has argued, however, that this failure to appoint an umpire is a mere irregularity and it did not affect the jurisdiction of the arbitrators to proceed with the reference. The moment the arbitration agreement was concluded and the agreement was brought to the notice of the arbitrators, the arbitrators became vested with jurisdiction to deal with the reference. Inasmuch as the arbitrators in fact never disagreed with regard to the matters referred to them and no necessity for referring the disputes to as umpire arose in the facts and circumstances of this case, no prejudice was caused to the petitioner by reason of the non-appointment of the umpire and consequently the Court should not in the exercise of its discretion vested under Section 30 of the Arbitration Act set aside the award for this technical defect. The learned Counsel has drawn my attention to the cases reported in ILR 39 Cal 669 at p. 679; Manindra Nath v. Mohanunda Roy, 15 Cal LJ 360 at p. 368 and Juggilal Kamlapat v. General Fiber Dealers Ltd., : AIR1955Cal354 . As I have held that the appointment of an umpire was a condition precedent which should have been fulfilled before the arbitrators could proceed with the reference, it must be held that the omission to make the appointment affected the jurisdiction of the arbitrators to Proceed with the reference and thereby the proceedings which took place before the arbitrators and the award made by them were rendered invalid. In the circumstances, the order that I propose to make is to declare that the award was invalid and it should be set aside. Accordingly, I set aside the award but as the matter appears to me not to be free from doubt, I direct that each party will hear its own Costs of the entire proceeding.


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