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Bajranglal Laduram Vs. Ganesh Commercial Co. Ltd - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata
Decided On
Case NumberA.F.O.O. and D. Nos. 73 to 75 of 1948
Judge
Reported inAIR1951Cal78,55CWN147
ActsArbitration Act, 1940 - Sections 9, 30 and 33; ;Code of Civil Procedure (CPC)
AppellantBajranglal Laduram
RespondentGanesh Commercial Co. Ltd
Appellant AdvocateE.R. Meyer, Adv.
Respondent AdvocateB.K. Choudhury and ;P.C. Mallik, Advs.
DispositionAppeal allowed
Cases ReferredChhogmal Rawatmal v. Sankalchand G. Shah
Excerpt:
- harries, c.j.1. these are three connected appeals from an order & two decrees of sinha j. by the said order sinha j. dismissed two applns. to set aside awards made by the bengal chamber of commerce & made two decrees in favour of the resps. in terms of the two awards.2. the parties to these three appeals entered into two contracts for the sale & put chase of certain jute materials. by contract no. 130 of 15-2-1946 the applts. agreed to sell to the resp. 3,60 000 b twill gunny bags at rs. 64-4 0 per hundred bags. delivery was to be made by equal instalments in the months of july, august & september.3. by a second contract no. 131 of 16-2-1946 the applts. agreed to sell to the reaps. a similar quantity of b twill gunny bags at rs. 64-4-0 per hundred bags. the terms relating to delivery were.....
Judgment:

Harries, C.J.

1. These are three connected appeals from an order & two decrees of Sinha J. By the said order Sinha J. dismissed two applns. to set aside awards made by the Bengal Chamber of Commerce & made two decrees in favour of the resps. in terms of the two awards.

2. The parties to these three appeals entered into two contracts for the sale & put chase of certain jute materials. By contract no. 130 of 15-2-1946 the applts. agreed to sell to the resp. 3,60 000 B Twill gunny bags at Rs. 64-4 0 per hundred bags. Delivery was to be made by equal instalments in the months of July, August & September.

3. By a second contract No. 131 of 16-2-1946 the applts. agreed to sell to the reaps. a similar quantity of B Twill gunny bags at Rs. 64-4-0 per hundred bags. The terms relating to delivery were similar to those in contract No. 130. Bach of these contracts contained an arbitration clause which is in these terms :

'All matters, questions, disputes, differences &/or claims arising out of & or concerning & or in connection with &/or in consequence of or relating to this contract whether or not the obligations of either or both parties under this contract be subsisting at the time of such dispute & whether or not this contract has been terminated or purported to be terminated or completed shall be refd. to the arbitration of the Bengal Chamber of Commerce under the rules of its Tribunal of Arbitration for the time being in force & according to such rules the arbitration shall be conducted.'

4. On 9-3-1946, it was agreed between the parties that only 90,000 bags per month should be delivered under contract No. 131. The applts. apparently paid the resp the damages in respect of the remaining 30,000 bags per month which they could not deliver.

5. The applts. failed to deliver the bags due under bath contracts for the months of July & August, but their failure to deliver was settled by payment of the difference between the prices of these bags on due date & the contract price. After such settlement there was left only the September deliveries under both contracts.

6. On 23-9-1946 the applts. by letter informed the resps. that they could not deliver any gunny bags under either of the contracts for the month of September & they asked the resps. to submit their bills for the loss sustained by reason of this non-delivery. On 1-10-1946 the resps. sent to the applts. two bills--one for Rs. 12,600 being the loss in respeat of contract No. 130 Rs. 16,650 being the loss in respect of contract No. 131. The loss was estimated as the difference between the price of Rs. 78-4-0 per hundred bags & the contract prices.

7. It is common ground that until 30-9-1946 the Jute Price Control Order was in force & that the price of one hundred B Twill gunny bags on 30-9-1946 was Rs. 66-12-0. The resps. did not apparently deny this but they claimed that damages should be assessed on the price ruling not on September 30 when the contracts came to an end, but on the following day, namely, 1-10-1946. On that date the resps. contended that the price of jute had risen to Rs. 78-4-0 by reason of the fact that the Jute Price Control Order had ceased to be operative at midnight on September 30.

8. The applts. refused to pay the amounts stated in the resps' bills & on 23-6-1947 the matter was refd. to the arbitration of a Tribunal of the Bengal Chamber of Commerce at the Instance of the applts.

9. On 3-7-1947, the Registrar of the Bengal Chamber of Commerce wrote to the applts. informing them that the resps had filed their case & calling upon the applts. to submit their case. On 16-7-1947 the Registrar of the Bengal Chamber of Commerce sent notices to the applts. & resps. that he had on that day duly constituted a Court under the rules of the Bengal Chamber of Commerce to decide the dispute. On July 23 the Registrar again wrote to the applts. informing them that he had been directed by the arbitrators to demand from the applts. their statement & papers connected with the case which were to be delivered on or before July 26, after which date the arbitration would be proceeded with upon the evidence then before the arbitrators. The applts. were guilty of delay in forwarding their statement & on 11-8-1947, the Registrar on behalf of the arbitrators again called upon the applts. to submit their case on or before 14-8-1947. The applts. again failed to submit their case & the Registrar again wrote on behalf of the arbitrators calling upon them to submit their case on or before 28-8-1947. On 28-8-1947 the applts. submitted their case & on 16-9-1947 the resps. filed a reply. On 18-9-1947 the Registrar sent the resps.' reply to the applts & asked them to forward any comment they had to make by 25 9-1947. On 29-9-1947 the Registrar informed both parties that he had handed over all the papers to the arbitrators for their consideration. For some reason or other the arbitrators delayed making their award & on 3-12-1947 the Registrar wrote to both the applts. & the resps that he had constituted another Ct. under the provisions of Rule VII (7) of the Rules of the Bengal Chamber of Commerce. This second tribunal decided the dispute & on 27-12 1947 made two awards in favour of the reaps. With respect to contract No. 130 the arbitrators awarded the amount claimed by the resps. namely, Rs. 12,600. With respect to contract No. 131 the arbitrators also awarded the resps. the amount the latter had claimed, namely, the sum of Rs. 16,650.

10. The applts. then filed two applns. in this Ct. praying that these awards be set aside on the ground firstly, that the arbitrators had no jurisdiction as no new tribunal could be appointed under the rules on 3-12-1947. It was contended that on that date the old tribunal were still entitled to function & no new tribunal could be appointed in their stead. Secondly, it was contended that the arbitrators had been guilty of legal misconduct in that they had awarded the resps. damages either for breach on 1-10-1946 which. they could not do, or had awarded damages on the basis that the resps. were entitled to buy as against the applts. on the black market & pay black market prices for the goods.

11. When the matter came before Sinha J. the second contention was not pressed as Sinha J. made it clear to the two counsel that he would have to reject the contention & follow the decision of Das J. in Tolaram Nathmull v. Ganesh Commercial Co. Ltd. which decision was later affirmed in Appeals Nos. 6, 7 & 16 of 1948 by an Appellate Bench of this Ct. Sinha J., however, gave the applts. liberty to urge this point before the Appellate Bench in the event of an appeal.

12. On the first point namely whether the arbitrators had jurisdiction it might be contended on the authority of Chhabba Lal v. Kallu Lal, that such a point could not be raised on an appln. to set aside an award. Their Lordships of the P. C. held in that case that an appln. to set aside an award presupposes an award made with jurisdiction & if it is contended that the arbitrators had no jurisdiction proceedings for setting aside an award Under Section 30, Arbitration Act, would not be appropriate. The applts. realised that such an appln. would not be maintainable & the appln. made was a composite appln. namely, one to set aside an award & an appln challenging the validity of the award Under Section 38 Arbitration Act. It is, I think, clear that an award can be challenged for want of jurisdiction Under Section 33 Arbitration Act, & the claim of the applts was an alternative one either that the Ct. should set aside the award or adjudge the said award to be invalid which is a prayer Under Section 33 of the Act. Sinha J. held that the award was with jurisdiction as the period for making the award by the first arbitrators had expired before the second arbitratprs were appointed by the Registrar.

18. Under Rule XXV (25) of the Rules relating to arbitration by Tribunals of the Bengal Chamber of Commerce it is provided as follows :

'The Ct. shall make its award in writing within four months after entering on the reference on or before any later day to which the Ct with the consent of all parties concerned in the proceedings by any writing signed by them, may from time to time, enlarge its time therefor or any extension of time granted by the Ct. of Judicature at Fort William in Bengal.'

14. The time for making the award was not extended & therefore the first arbitrators were bound to make an award within four months after entering on the reference.

15. The second arbitral tribunal was appointed by the Registrar under Rule VII (7) of the Rules of the Bengal Chamber of Commerce which is in these terms:

'If the Ct. have allowed the time or extended time to expire without making any award, & without having signified to the Registrar that they cannot agree, the Registrar shall constitute in manner aforesaid another Ct. which shall proceed with the arbitration & shall be at liberty to act upon the record of the proceedings as then existing & on the evidence, if any, then taken in the arbitration or to commence the arbitration de novo.'

16. The Registrar in appointing the second Ct. acted under Rule VII (7) as in his view the first Ct. had allowed the time for making their award to expire without having made an award & without having signified to the Registrar that they were not agreed.

17. The contention of the applts. is that the time given to the first Ct of arbitration to make their award had not expired by 3 12-1947 when the Registrar appointed a second Ct. to decide the dispute Clearly if the time for making the award by the first tribunal had not expired when the second tribunal was appointed the latter could not possibly have jurisdiction to entertain the reference. The latter Ct. could only entertain the reference if they were properly appointed & these arbitrators could not be properly appointed except in the case where the first arbitrator appointed had made no award for four months from the date upon which they entered upon the reference.

18. According to the applts. the first arbitral tribunal did not enter upon the reference until 29-9-1947 at the earliest. As I have already stated, on that date the Registrar wrote to both the parties that he had on that day handed the papers to the Ct. for adjudication. The applts' contention is that until the papers had been handed to the arbitrators they could not possibly begin their duties & it could not be said that they bad entered upon the reference before they had received the papers. The applts. in fact went further & contended that the first arbitrators could not be said to have entered upon the reference until they had met to consider the papers with a view to making an award. The applts. pointed out that there was no evidence that they had so met before 3-12-1947. However the applts. were quite satisfied to take 29-9-1947 as the date upon which the first arbitrators entered upon the reference & if they had not entered upon the reference before 29-9-1947 then clearly no new arbitrators could be appointed on 8-12-1947 because only less than 2 1/2 months had elapsed from the time upon which they had entered upon the reference.

19. The resps. on the other hand contended that the Ct. was bound to hold that the arbitrators had entered upon the reference by 23-7-1947 because on that date the Registrar wrote to the applts. to the effect that he had been directed by the arbitrators to call for the applts'. statement before July 29 & if such statement was not filed by that time the arbitrators would proceed with the arbitration. The contention of the resps. is that the arbitrators could give the Registrar no directions to call for statements until they had entered upon the reference. Calling for statements is an act of the Ct. preliminary to the actual hearing. But it is an act which the Ct. could not perform unless it had entered upon its duties.

20. The applts. contended, however, that the matter was decided by authority & that it had been held both in England & in India that arbitrators cannot be said to have entered upon the reference until they had actually begun to hear the reference. Reliance was placed upon an old English case of Baker v. Stephens, (1867) 2 Q. B. 523 : (36 L. J. Q. B. 236). The headnote of that case is as follows :

'By Section 15, Common Law Procedure Act, 1854, the arbitrator, acting under any document or compulsory order of reference or under any order referring the award back shall make his award, it no other time is fixed 'within three months after he shall have been appointed & shall have entered on the reference'.

An award was refd. back by rule of Ct. on 12-6-1865; the arbitrators, on 5th of October (having previously made an appointment, which the deft did not attend), appointed the 19th of October to proceed peremptorily & ex-parte, if either of the parties did not attend; the deft. made an, excuse for not attending & the arbitrators, thinking the excuse valid, made a fresh peremptory appointment for the 31st of October. The deft. did not attend & the arbitrators then took the pltf's. evidence; & after further notice proceeded with the reference, the deft. still refusing to attend; & they made their fresh award on 6-1-1866.

It was held that the award was made in time; for that an arbitrator enters on a reference, not when he accepts the office, or takes upon himself the functions of arbitrator by giving notice of his intention to proceed, but when he enters into the matter of the reference, either with both parties before him, or under a peremptory appointment enabling him to proceed ex parte.'

Cockburn C. J. at p. 526 of the report observed :

'The words of the section are somewhat ambiguous but the only sound construction appears to me to be that the three months must date from the time the arbitrator actually enters upon the reference; not from the time that he merely takes upon himself the office of arbitrator by accepting the reference, but from the time he takes upon himself & exercises the functions of arbitrator.'

21. It is, however, clear that Cockburn C. J. was of opinion that an arbitrator does not begin to exercise the functions of an arbitrator until he hears the case in the presence of both parties or ex-parte as a result of some peremptory order. Blackburn J. was also clearly of opinion that arbitrators do not enter on the reference until they actually begin to hear the dispute & such was the opinion also of Mellor J. The Fourth Judge, Shee J., summed the matter up in these words :

'And the three months 'after he shall have been appointed' must be taken first in the sense of the original appointment, & secondly in the sense of a reference back; but then the section says, '& shall have entered on the reference', so that the time is extended beyond the mere date of the appointment or reference back; & the question is, what is the meaning of 'entering on the reference I think it means the beginning the real business of the reference by holding a meeting of the parties.'

22. It is contended on behalf of the applts. that this case is conclusive & we should follow it. If the principle enunciated in Baker v. Stephens, (1867 2 Q. B. 523 : 36 L. J. Q. B. 236) is folld. I think it is clear that the time given to the first arbitrators for making an award had not expired before 3-12-1947 because there is nothing to suggest that they had met to consider the dispute at any time more than four months before 3-12. Sinha J. however distinguished the decision on the ground that by the rules of the Bengal Chamber of Commerce the arbitrators were not bound to hear the parties & could proceed to decide the dispute upon the papers which had been submitted to them, That I think is clear from Rule 15 which provides :

'The dispute will normally be decided by the Ct. on the written statements of the parties & oral evidence will not be taken nor will the parties be entitled to appear or any formal hearing be held. The Ct. shall have power however if it thinks fit to appoint a time & place for the hearing of the reference & to hear oral evidence.'

23. In the view of Sinha J. the case of Baker V. Stephens (1867-2 Q B. 523 : 36 L. J. Q. B. 236) could not possibly apply to an arbitration such as is contemplated by the rules of the Bengal Chamber of Commerce. IN his view having regard to the nature of the arbitration contemplated by those rules the arbitrators could be said to have entered upon the reference when they had taken steps to ensure the placing before them the respective statements of the parties.

24. Counsel for the applts. also reld. upon the case of Varipati & Co. & Olympia Oil & Cake Co. In re, 1914 W. N. 208. In that case the question arose as to when an arbitration had been held. But it appear- to me that the case is of no assistance in arriving at a conclusion as to when it can be said that arbitrator have entered upon the reference.

25. Counsel for the applts. also reld. upon an observation of Lindley M. R. in Baring Gould v. Sharpington Combined Pick & Shovel Syndicate, (1899) 2 Ch. 80 at p. 91 : (68 L. J. Ch. 429).. Lindley M. R. observed :

''Stirling J. has, as I understand him. construed called on to act' as meaning called on to enter on the reference'; that is, to proceed to hear the parties.'

26. From this observation it would appear that Lindley M. B. took the same view as the learned Judges did in Baker v. Stephens, (1867-2 Q. B. 523: 36 L. J. Q. B. 236). But it seems to me that there is in this case no express decision as to what is the meaning of the phrase 'to enter upon a reference.'

27. Baker v. Stephens, (1867-2 Q. B. 523 : 36 L. J. Q. B. 236) was folld. by a Bench of the Allahabad H. C in Sardar Mal v. Shee Bakhsh, 44 ALL. 432 : (A I. R. (9) 1922 ALL. 106). The Bench held that the phrase 'entering on the reference' appearing in Clause (3) of Schedule 1, Arbitration Act, 1899, meant not when the arbitrator accepted the office or took upon himself the duty, but when he actually entered upon the matter of the reference, when the parties were before him, or under some peremptory order compelling him to conclude the hearing ex parte. There can be no doubt that this case is an authority for the proposition contended for by the applt.

28. The applts. also reld. upon a case of this Ct. Nanda Kishore v. Bally Co-operative Credit Society Ltd., : AIR1943Cal255 . That was a case under the Cooperative Societies Act & it was held by a Bench consisting of Mukherjea & Blank JJ. that the provisions contained in chap. II, Arbitration Act, 1940 were inconsistent with the procedure for arbitration indicated in Rule 22 framed under Section 43, Co-operative Societies Act, 1912, & Under Section 46, Arbitration Act, its provisions did not apply to an arbitration of a dispute relating to Co-operative Societies. That being so, where an award was made under the Co-operative Societies Act, it was not necessary to obtain a judgment of the civil Ct. on that award in order to execute it. At p. 434 Mukerjea J. who delivered the judgment of the Bench observed as follows :

'It goes without saying that an arbitrator cannot be said to enter on the reference, the moment that he is appointed an arbitrator. It is necessary that he must actually begin the work in the presence of the parties or with notice to them before he can be said to have entered on the reference.'

29. This observation of Mukherjee J. does support the contention of the applts. But I think the observation is obiter & was not really necessary to the decision of the case as the Ct. had held that the provisions of the Arbitration Act, 1940, did not apply to the arbitration which they were considering in that case.

30. Counsel also referred to the case of Ranganathan ?. Krishnayya, : AIR1946Mad504 . There are observations of Leach C. J. at p. 121 which would suggest that the learned Chief Justice was of opinion that entering upon a reference was synonymous with entering upon the hearing of a particular claim. However, the meaning of the learned Chief Justice is not clear & in any event the observation is obiter.

31. The English Cts. have quite clearly changed their view as to the meaning of the term 'entering upon a reference' & the most recent decision in Lossifoglu v. Coumantaros, (1941) 1 K. B. 396 :

(110 L. J. K. B. 54), cannot possibly be reconciled with the case of Baker v. Stephens, (1867-2 Q. B. 523 : 36 L. J. Q. B. 236). In this case a contract of sale contained an arbitration clause which provided that:

'Should any dispute arise between the sellers & buyers under this contract, the same shall be refd. to persons in London, one to be appointed by each of the parties hereto. In case the arbitrators so appointed disagree they shall appoint an umpire.'

A dispute arose between the sellers & buyers & each of them appointed an arbitrator. One of the arbitrators repeatedly endeavoured to arrange a meeting with the other, but the latter failed to arrange such a meeting. The arbitrator then unsuccessfully endeavoured to obtain the consent of the latter to the appointment of an umpire. Appln. was then made to the Ct. for the appointment of an umpire Under Section 5, Arbitration Act, 1889.

32. It was held by the Ct. of Appeal affirming a Divisional Ct. of three learned Judges that arbitrators entered upon a reference as soon as they had accepted their appointment & had communicated with each other about the reference. The Ct. was entitled to appoint an umpire Under Section 5, Arbitration Act, 1889, as there has been disagreement between the arbitrators.

33. It is clear that in this case the Ct. was bound to consider when the arbitrators had entered upon the reference. From the report it would appear that the case of Baker v. Stephens, (1867-2 Q. B. 523: 36 L. J. Q. B. 236) was not cited either to the Divisional Ct. or to the Ct. of Appeal. But the decision of the Ct. of Appeal is an emphatic one. At p. 400 Scott L.. J. who delivered the judgment of the Ct. of Appeal observed:

''In this case a question has arisen as to the appointment of an umpire pursuant to the provisions of Section 5, Arbitration Act, 1889, under an arbitration clause contained in an agreement. The question raised by the appeal really resolves itself into this : When can arbitrators be said to enter upon a reference? In my view, they enter upon it as soon as they have accepted their appointment & communicated with each other about the reference. That was the view taken by the Divisional Ct. in the present oase, reversing a decision of Gassels J., who had affirmed a decision of Master Moseley.'

34. The Cts. in India are of course not bound by any English decisions though such decisions are powerful persuasive precedents. From what I have said it is clear that the later view taken by the Ct. of Appeal is contrary to the earlier view taken by the Queen's Bench in Baker v. Stephens, (1867-2 Q. B. 523: 36 L. J. Q. B. 236). It is open to this Ct. to follow either of these decision or to follow neither. In my view, however, the recent case of Lossifoglu v. Coumantaros, (1941) 1 K. B. 396 : (110 L. J. K. B. 54) should be folld., particularly in cases of the kind now before us when arbitrators, by the rules, are not bound to meet the parties. It seems to me that arbitrators appointed under the Rules of the Bengal Chamber of Commerce must be held to have entered upon the reference when they have accepted their appointment & instructed the Registrar to call for statements from the parties. According to the later view of the English Ct. of Appeal arbitrators have entered upon the reference when they have merely accepted their appointment & communicated with each other about the reference. Obviously in the present case the arbitrators had accepted their appointment & must have communicated with each other because they actually instructed the Registrar to call for statements by a certain date. They had begun the preliminary work of the reference & it seems to me that it must be held that they had entered upon the reference when they had both decided to accept their appointment & had taken steps in concert to obtain from the parties the necessary statements & papers to enable them to decide the matter & make an award.

35. It is clear that the attitude of the English Cts. towards arbitrators had changed very materially. In earlier decisions such as in Baker v. Stephens, (1867-2 Q. B. 523: 36 L. J. Q. B. 236) the tendency was to deny jurisdiction to the arbitrators in any case where such a view was possible. This attitude has changed materially in later years & now the tendency of the Ct. is to uphold the jurisdiction of arbitrators whenever such a view is possible. That change in attitude does in my view probably account for the confliciting decisions in Lossifoglu v. Coumantaros, (1941) 1-K. B. 396 (110 L. J. K. B. 54) & Baker, v. Stephens, (1867) 2 Q. B. 523: (36 L. J. Q. B. 236). This later view of the English Ots. accords with my own view & with the view of Sinha J. & I think must be accepted in India.

36. For these reasons, therefore, I am satisfied that Sinha J. was right in holding that the arbitration was with jurisdiction as four months had expired before the Registrar appointed the second tribunal. As I have stated already, the arbitrators had certainly entered on the reference by 23-7-1947 as by that date they had instructed the Registrar to call for a statement from the applts. & the four months had elapsed on 23 11-1947.

37. The second paint argued before us was that the arbitrators had clearly misconducted themselves by awarding the damages which they did. On behalf of the applte. it was contended that damages had to be assessed on September 30, which was the last date for delivery & which is known as the due date. Their Lordships of the P. C. have emphatically laid down that the due date is the last date for delivery which in this case was 30-9-1946 & counsel for the resps. has quite frankly conceded this. He however, has attempted to uphold the award on three grounds.

38. Firstly he has contended that the arbitrators must have held that the time for delivery was extended to 1-10-1946. As I have already stated, the Jute Price Control Order which controlled the price of jute expired on 30-9-1946 & on October 1, there was a free market for jute & the price was uncontrolled. The contention of the applts. is that if the time for delivery had been extended then it was open to the arbitrators to find the price at which jute could be bought by the resps. against the applts. Admittedly, the price had risen immediately the Jute Price Control Order had ceased to be effective & the price upon which damages were based, namely, Rs. 78-4-0 could therefore be justified.

39. It is to be observed that the damages awarded by the arbitrators in both cases were the precise amounts claimed by the resps. in the bills which they submitted to the applts. on 1-10-1946 & therefore it is urged that it must be admitted that the arbitrators must have taken the date of delivery as being 1-10-1946 & therefore they must have held that the date of delivery had been extended.

40. In my view the arbitrators could not hold that the last date of delivery had been extended without some evidence. This was not the respt's. case & there is no suggestion in any of the documents which were placed before the 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 of delivery except on evidence, as such would not be a matter within their expert knowledge. Counsel for the resps. eventually conceded that the award could not be justified on the assumption that the arbitrators must have held that the time for delivery had been extended If they had held that the time had been extended such would have been a finding upon no evidence at all & would clearly amount to legal misconduct. There are a number of recent decisions of this Ct. which have taken this view & which need not be refd. to in this judgment.

41. Secondly, it was suggested that the arbitrators must have held that the proper measure of damages was the price on 1-10-1946 because it had been provided by the rules of the Gunny Trader Assocn. that damages in respect of contracts expiring on 30-9-1946 should be calculated with reference to the price ruling on 1-10-1946. It was never the case of the resps. that this or any other rule of the Gunny Traders' Assocn. had been incorporated in the contract & therefore there was nothing in the contracts to warrant the assessment of damages based upon the price ruling on 1-10-1946. If the arbitrates accepted the riew of the Gunny Traders' Association that the price on 1-10-1946 was a fair method of assessing the damages then they substituted the views of the Gunny Traders' Assocn. for their own. It is for the arbitrators to decide how damages are to be assessed & they must not accept the view of any other person or assocn. as such would amount to legal misconduct. The arbitrators must themselves find the point of time at which damages have to be assessed & a rule of the Gunny Traders' Assocn. not incorporated in the contract could not form the basis for the assessment of such damages. Counsel for the resps. finally did not press this point.

42. Thirdly, it was argued that at most the arbitrators have merely made a mistake of law in assessing damages based upon the price ruling at a date other than 30-9-1946, or in the alternative they had committed an error of law in fixing the price on 30-9-1946 as the price ruling in the black market.

43. This matter has been consd. by this Ct. in a number of cases recently. The matter was first raised before Das J. in the case of Tolaram Nathmal v. Ganesh Commercial Co. Ltd In that case the time for delivery expired on 30-9-1946, but an award of the arbitrators awarding damages based on the price ruling after the expiry of the Jute Price Control Order on 30-9-1946 was upheld Sinha J. was of opinion that this case which had been affd. by an Appellate Bench concluded the matter. But this case is no authority for the proposition that where there was a breach on 30-9-1946 any price other than the controlled price on that date could form the basis of damages for non-delivery. In Tolaram Nathmal's case it was expressly raised in the statements that by a custom of the trade damages could be assessed upon the basis of the price ruling not on 30-9-1946, but on 1-10 1946. Whether there was such a custom would be within the special knowledge of the arbitrators & as the custom was expressly raised this Ct. held that there was proper material before the arbitrators upon which they could hold that the damages could be based on the price ruling on 1-10-1946 & notion 30-9-1946. There was, however, nothing in the statements before the arbitrators in this case suggesting any such custom & therefore it was not open to the arbitrators to take into account custom if such existed because the matter had never been pleaded or reld. upon by the resps.

44. The precise point came before this Ct. for decision in Chhogmal Rawatmal v. Sankalchand G. Shah & Co., A. F. O. O. No. 28 of 1949 : (53 C. W. N 828). In that case Chatterjee J. held following an earlier decision of an Appellate Bench consisting of Sinha J. & myself in Khusiram Benarshilal v. Girdharilal Dharamchand, A. F. O. O. No. 80 of 1948, that to award damages based on a price admittedly in excess of the maximum price in vogue during the relevant period under the Jute Price Control Order would amount to misconduct. As Chatterjee J. observed :

'To allow the arbitrators to award such damages would be to legalise an act which has been declared to be an offence under the relevant statute & 'cannot possibly be permitted by a Ct. of law.... It is impossible for the Ct. in such a case to accept the contention that at the most the arbitrators are guilty of an error of law & as the error is not apparent on the face of the award, it is not open to the Ct. to set aside the award.'

45. The Bench consisting of Chatterjee J. & myself held that the assessment of damages based upon black market prices would amount to legal misconduct & would vitiate the award. It appears to me that the present case cannot be distd. from the case of Chhogmal Rawatmal v. Sankalchand G. Shah, (53 C. W. N. 828) & the case of Khusiram Banarshilal v Girdharilal Dharamchand, A. F. O. O. No. 80 of 1948 & that being so it must be held that the arbitrators in making the awards which they made in this case were guilty of misconduct & therefore the awards should be set aside.

46. In the result, therefore, though we hold that the awards were made with jurisdiction, nevertheless they must be set aside as the arbitrators were guilty of misconduct.

47. These three appeals must, therefore, be allowed & the order of Sinha J. & the decree made in consequence thereof must be set aside & the applns. for setting aside the awards must be allowed in each case & the awards set aside. The applts. are entitled to their costs in this Ct. & in the Ct. , below, but as the three appels have been consolidated & heard together there will be only one set of costs.

Chatterjee, J.

48. In my view certain amount of confusion has been created by the following passage in Russell on Arbitration & Award, Edn. 12 page 351:

'Arbitrators do not enter on the reference by mere acceptance of the appointment, or by giving a peremptory notice for a meeting or until they begin judicially to enquire into the case. (Baker v. Stephens, (1867) 2 Q. B. 523; 36 L. J. Q. B 236; Varipati & Qlympia Oil And Cake Co., In re, (1914) W. N. 208).'

49. It is to be observed that in the latest edition of Russell on Arbitration, this para, has been omitted. The law has been changed in England.

50. I agree with the learned Chief Justice that Baker v Stephens, (1867-2 Q. B. 523 : 36 L. J. Q. B. 236) would not be consd as good law in England in new of the judgment of the Ct. of Appeal in Iossifoglu v. Counmentaros, (1941) 1 K. B. 396 : (110 L. J. K. B. 54). In the latter case six learned Judges including Viscount Caldecote C. J. & Scott L. J. rejected the argument advanced on behalf of the applts. that entering upon reference does not take place till the arbitrators actually meet & discuss matters. In my view, the arbitrators enter upon reference when they take upon themselves the office of arbitrators & exercise some functions as arbitrators. If they meet & determine the date of hearing & issue directions as to pleadings they exercise the functions of arbitrators &, therefore, they should be treated as having entered on the reference.

51. In Baker v. Stephens, (1867-2 Q. B 523 : 36 L. J. Q. B. 236) the arbitrators gave notice to both parties of their intention to meet on the 8th August. On August 8, they actually met & the pltf's attorney attended but the deft's attorneys did not appear. They had written a letter to the arbitrators saying that they could not attend on that day. The arbitrators consd. that letter & determined not to proceed ex parte. On Octorbor 5, they sent a formal notice fixing October 19 peremptorily to proceed with the case. On October 19, the deft's attorneys did not attend & put forward an idle excuse that their counsel was out of town. On that date also the arbitrators did meet but they did not proceed ex parte but fixed October 31 for the next sitting. On October 31, the deft. did not appear nor his attorneys & the arbitrators proceeded to take the pltf's evidence & they ultimately made an award on January 6. It was held by Blackburn J. that the arbitrators did not enter upon the reference until after the 5th October. With great respect I differ. Clearly the arbitrators had met on 8th August, & again on 5th October & exercised their functions as arbitrators on these dates. On principle it is difficult to agree with Millor J. that the arbitrators do not enter upon the reference until the parties are before them or until they proceed ex parte, specially when there are special Rules which do not make it obligatory for the arbitrators to hear the parties or to take evidence. In my view the issuing of directions as to pleadings or the filing of the statements in reply or rejoinder or the fixing of dates for hearing are acts done by the arbitrators in the exercise of their functions as such & they cannot discharge such duties unless & until they enter on the reference.

52. I agree with my Lord the Chief Justice that the correct view was taken in Iossifoglu v. Coumantaros (1941) 1 K. B. 396 : (110 L. J. K. B. 54). In that case the arbitrators had never met. As a matter of fact, one of the arbitrators did his best to avoid a meeting, but he raised disputes & suggested to his co-arbitrator that they should appoint an Umpire. The Ct. of Appeal held that the arbitrators-had accepted their appointment & they were communicating with each other about the reference & that was quite enough to constitute 'entering upon the reference'. With respect I agree that this is the correct view.

53. Sardarmal Hardatrai v. Sheo Baksk Rai Sri Narain, 44 ALL. 432: (A. I. R. (9) 1922 ALL. 106) merely fold. Baker v. Stephens, (1867-2 Q. B. 523: 36 L. J. Q. B. 236 It seems Mukherjee J. in Nanda Kishore v. Bally Co-operative Credit Society Ltd.; : AIR1943Cal255 , was inclined to take a similar view. Strictly his observation is an obiter. But I agree with his Lordship that an arbitrator cannot be said to enter upon the reference the moment he is appointed an arbitrator. Arbitrators enter upon reference when they actually begin to discharge the functions of arbitrators & that does not connote that both the parties must be before the arbitrators or that there must ba some previous peremptory order compelling the arbitrators to conclude the hearing ex parte. Issuing mandatory direction for pleadings, or for particulars or for interrogatories or fixing peremptory dates for hearing can only be done by the arbitrators when they have begun their work as such & taken upon themselves the functions of arbitrators.

54. With regard to the second point urged by the learned counsel for the applt., I agree that it is concluded by the judgment of the Ct. of Appeal in Chhogmal Rawatmal v. Sankalchand G. Shah, A. F. O. O. No. 23 of 1949 : (53 C. W. N. 828). The question raised here is not one of mistake but of misconduct. The arbitrators were clearly guilty of legal misconduct when they awarded damages either on the basis of black market rates on 30th September which was the date of the breach of this contract in violation of the Jute Price Control Order, or, on the basis of an extension of the due date without any evidence or any material before the arbitrators. As I pointed out in my judgment in the above case, take the Award on either footing. If the arbitrators held that there was no extension then they awarded damages contrary to the law of the land & they were guilty of legal misconduct. If they held that there was an extension, then they were equally guilty of misconduct, because there was no evidence at all of any extension & no averment & no material to support the same.

55. I agree that the appeals should be allowed & the decrees & the award should be set aside.


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