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Surendranath Paul Vs. Union of India (Uoi) - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtKolkata High Court
Decided On
Case NumberA.F.O.O. No. 242 of 1963, (Award Case No. 128 of 1963)
Judge
Reported inAIR1965Cal183
ActsArbitration Act, 1940 - Sections 3(1), 8 and 34
AppellantSurendranath Paul
RespondentUnion of India (Uoi)
Appellant AdvocateSanjib Datt, Adv.
Respondent AdvocateA.C. Bhabra and ;Dipak Sen, Advs.
DispositionAppeal dismissed
Cases Referred and Karam Chand v. Sant Ram Tara Chand
Excerpt:
- bose, c.j.1. this is an appeal from an order of mallick, j. dated the 19th july 1963 staying a suit under section 34 of the arbitration act, 1940.2. the appellant who is a contractor under the controller of stationery, government of india, entered into certain contracts with the controller of printing and stationery, calcutta representing the respondent union of india for the supply of envelopes, flaps ungummed of different sizes and for the supply of exercise books etc. and deposited a sum of rs. 12,777/- as security money. the contracts contained an arbitration clause being clause xvii of the general conditions of contract. the said arbitration clause is as follows: (xvii). arbitration--'except where herein otherwise provided any dispute or difference arising; during or after the.....
Judgment:

Bose, C.J.

1. This is an appeal from an order of Mallick, J. dated the 19th July 1963 staying a suit under Section 34 of the Arbitration Act, 1940.

2. The appellant who is a contractor under the Controller of Stationery, Government of India, entered into certain contracts with the Controller of Printing and Stationery, Calcutta representing the respondent Union of India for the supply of envelopes, flaps ungummed of different sizes and for the supply of exercise books etc. and deposited a sum of Rs. 12,777/- as security money. The contracts contained an arbitration clause being Clause XVII of the general conditions of contract. The said arbitration clause is as follows: (XVII). Arbitration--'Except where herein otherwise provided any dispute or difference arising; during or after the subsistence of this contract touching any clause, matter or thing herein contained, or the operation or construction hereof, or the rights, duties or liabilities of either party under or in connection therewith shall be referred to the arbitration of the Secretary to the Government of India, Ministry of Works, Housing and Supply and if the Secretary to the Government of India, Ministry of Works, Housing and Supply is unable or unwilling to act to the sole arbitration some other person appointed by the Secretary to the Government of India, Ministry of Works, Housing and Supply willing to act as such Arbitrator. It will be no objection to any such appointment that the Arbitrator so appointed is a Government servant, that he had to deal with matters to which this agreement relates and that in course of his duties as such Government servant he had expressed views on all or any of the matter in dispute or difference. The Award of the Arbitrator so appointed shall be final, conclusive and binding on all parties to this contract.' 3. The appellant manufactured and supplied the requisite stationery in terms of the said contracts and submitted bills. As the respondent failed to pay a sum of Rs. 10,193.30 nP. being the outstanding balance in respect of the said bills and also failed and neglected to refund the security deposit of Rs. 12,777/-, disputes and differences arose between the parties and on the 8th January 1961 the appellant referred the disputes and differences relating to the said claims to the Secretary to the Government of India; Ministry of Works, Housing and Supply in terms of the arbitration agreement, but no reply was received by the appellant to the letter written to the Secretary till the 3rd July 1961 when the appellant sent a reminder to the Secretary, but as this letter also was not replied to, the appellant made an application to this Court on the 28th August 1961 for appointment of an Arbitrator under Section 8 of the Arbitration Act, 1940. During the pendency of the said application, on or about the 15th/19th September 1961 the Secretary appointed one Sri K. R. Desai as an Arbitrator in respect of the said reference. On the 28th September 1961 Sri Desai purported to enter on the reference and directed the appellant to file a statement of claim by the 3rd October 1961 or to adopt the statement of claim which he had submitted to the Secretary when the reference was made and which was already on record. On the 4th December 1961 the said application for appointment of Arbitrator which was made by the appellant was dismissed inter alia on the ground that Sri Desai was already appointed the Arbitrator by the Secretary. On the 14th December 1961 Sri Desai again asked the appellant to file his claim by the 15th January 1962. On the 10th January 1962 Messrs. J.K. Sarkar and Co., solicitors for the appellant, wrote to Sri Desai stating that his appointment as Arbitrator was bad and that he had no jurisdiction to act in the matter. On the 26th March 1962 an application was made by the respondent Union of India for extension of time to make the award, the prescribed period having expired in the meantime. On the 31st May 1962 a notice under Section 80 of the Code of Civil, Procedure was issued by the appellant for the filing of a suit against the respondent Union of India for Rs. 22,970.30 np. in respect of the said balance of claim and refund of the security deposit. On the 29th August 1962 Sri Desai resigned the office of Arbitrator. On the 17th September 1962 the application for extension of time to make the Award was disposed of and no order was made on the said application to extend the time. On or about the 10th December 1962 the Secretary appointed one Sri V. Ramaswami Iyer as the Arbitrator in place of the said Sri Desai. On the 11th December 1962 Sri Iyer purported to enter on the reference and directed the appellant to file a statement of claim by the 31st December 1962. On the 20th December 1962 Messrs. J.K. Sarkar and Co., solicitors for the appellant, wrote to Sri Iyer challenging his appointment as bad. On the 21st January 1962 (1963?) Sri Iyer again directed the appellant to file his statement of claim by the 5th February 1963. On the 22nd January 1963 J.K. Sarkar and Co. again wrote to the Arbitrator objecting to his jurisdiction to proceed with the reference and on the Ist February 1963 another letter was written by the said solicitors to Sri Iyer to the same effect. On the I5th February, 1963 Sri Iyer wrote a letter to the parties fixing Ist of March 1963 for hearing of the reference. By a letter dated the 23rd February 1963 J.K. Sarkar and Co., informed the Arbitrator that a suit being suit No. 323 of 1963 had already been filed against the Union of India and so the Arbitrator should not proceed with the reference. On the Ist March 1963 the hearing of the reference was adjourned till the 8th March 1963 and on the last mentioned date the arbitration proceedings were adjourned, sine die in view of the fact that a suit had already been filed. On the 8th March 1963 the Union of India was served with a summons in the said suit and on the 10th May 1963 the respondent made an application for stay of the suit under Section 34 of the Arbitration Act. After the affidavits were filed, the application came up for hearing before Mallick, J. who by his order dated the 19th July 1963 stayed the suit filed by the appellant. It is against this order that the present appeal has been preferred.

4. The first point which has been urged by the learned counsel for the appellant is that the power of appointment which was conferred by the arbitration clause upon the Secretary, Ministry of Works, Housing and Supply, was extinguished after it was once exercised and the Secretary having appointed Sri Desai, his power was exhausted by this single execution and he was not competent to make a second appointment. Reliance is placed in support of this argument on a passage in Russell on Arbitration (17th Edition) p. 215 and on the case of Oliver v. Coilings, (1809) 11 East 367: (sic) ER 1045 and on the case of Reynolds v. Gray, (1697) 91 E R 1045. The passage in Russel is as follows :

'But appointment of an Umpire which has become effectual by acceptance of the office exhausts the power of appointment, and the appointers have no power to revoke the appointment made or to make a fresh appointment in place of it; if the person appointed then will not act, recourse must be had to the Court.'

5. In (1697) 91 ER 1045 the proposition laid down by Chief Justice Holt is that:

'If Arbitrators have authority to choose an Umpire and they chose A accordingly; they have executed their authority and cannot make another election though A does not accept the umpirage. But if the election of the Umpire is made conditionally, 'then until the condition is performed, the elected person does not become the Umpire.'

6. In (1809) 103 ER 1045 the facts were that under the terms of the submission two persons-Rowe and Stephens were appointed joint Arbitra-tors with a power to appoint an Umpire if they could not agree. As the Arbitrators did not agree they first appointed one Hambly as Umpire but as he declined to act, they appointed another person Mr. Grigg as such Umpire. But the defendant's Attorney objected to Grigg's appointment-on the ground that he was on bad terms with the defendant. Upon that the two Arbitrators proposed two different persons as Umpires but as they could not agree upon either, the plaintiff's and the defendant's Attorneys met and agreed upon a new person being an Umpire, but as the Arbitrators did not make any further appointment, the plaintiff's Attorney called upon Grigg to proceed with the umpirage and Grigg made an Award notwithstanding the fact that it was brought to his notice that the defendant's Attorney had objected. to his appointment. Lord Ellenborough observed :

'We have lately held that if an authority be once executed, it cannot be executed again. Here the Arbitrators had executed their. authority by an effectual appointment of an Umpir who accepted and acted upon the authority so conferred on him. The consent or dissent of the parties themselves afterwards to such appointment signifiesnothing.'

7. Reliance was also placed on the case of A. Ramjibhai and Co. v. Yusif Ali Mohammad Ali Antria and Bros. AIR 1925 Sind 12 where Aston, A.J.C. held that:

'Where a valid nomination of an Arbitrator has been made and the Arbitrator has refused to act, the right of the party or of a third person is exhausted and Section 8 of the Arbitration Act comes into play. But when the parties intend the word 'appoint' to mean appointment of a willing Arbitrator or when the parties make an appointment subject to acceptance, the party has the right to appoint another Arbitrator if the Arbi- trator previously appointed refuses to act.'

8. The learned Judge in this case referred to the case of (1697) 91 ER 1045 and also to the case of In re Wilson and Sons and Eastern Countries Navigation and Transport Co., (1892) 1 QB 81. Now a reference to the case of In re Wilson, (1892) 1 QB 81 shows that upon certain difference arising between Messrs. Wilson and Sons who were contractors and the Navigation Co. in connection with the execution of certain works for the improvement of the navigation of a river, such differences were referred to Arbitration under Clause 13 of the contract which was as follows:

'In case of any difference arising between the Company and the contractors concerning the works, the difference shall be referred to Mr. Martineau or failing him a person to be named by the President of the Institute of Civil Engineers, who shall be Standing Referee, and whose decision shall be final and.....'

So difference having arisen the same was referred to Mr. Martineau and he made an Award. After- wards Mr. Martineau went to America and during this absence further differences having arisen the Company applied to the President of the Institute to appoint another Arbitrator and the President appointed one Mr. Shelford. Mr. Shelford objected to act as Arbitrator unless appointed by a Judge's order. So the Company applied to Collins, J. who made an order appointing Mr. Shelford as Arbitrator. This order of Collins, J. was challenged as being without jurisdiction. Mathew, J. held that the order was without jurisdiction and inter alia observed as follows:

'The question turns on Section 5 of the Arbitration Act, 1889. It is contended that Mr. Shelford refused to act within the meaning of Sub-section (b) of that section. I cannot agree with the view that he refused. But even if be had done so, the proper course would have been to apply again to the President of the Institute of Civil Engineers and obtain the appointment of some other person.'

9. It will thus appear from the case reported in AIR 1925 Sind 12 that if the power of appointment relates to appointment of an Arbitrator willing to act and if the appointed Arbitrator refuses to act, then the power of a party or a third person to make a second appointment is not exhausted. The case of In re Wilson, 1892-1 QB 81 also shows that even if it was found that Mr. Shelford had refused to act, still the President of the Institute could be approached again to make a fresh appointment in his place and the power of the President could not be said to have been ex-hausted after making the first appointment.

10. The attention of the Court has also been drawn to a decision of the Judicial Committee reported in E.B. Sassoon and Co. v. Ram Dutt Ram Kissen Das, 49 Ind App 366: (AIR 1922 PC 374). In this case a contract for the sale of jute by the respondent provided that any dispute should be referred to arbitration in accordance with the rules and bye-laws of the Calcutta Balded Jute Association. By bye-law 15 where either party should make default in appointing an Arbitrator, the Chairman of the Association could appoint one on his behalf. The contract further provided that the Arbitrators and Umpire should be members of the trade. The respondent having made default in appointing an Arbitrator in place of one who retired, the appellants purported to appoint their Arbitrator to act as the sole Arbitrator under Section 9(b) of the Indian Arbitration Act, 1889. The sole Arbitrator, made an Award in favour of the appellants who filed it in Court and enforced execution. The respondent thereupon sued for a declaration that the Award was void on the ground that the appointment as sole Arbitrator was invalid. The Judicial Committee after referring to the relevant bye-laws and terms of the contract observed at p. 374 (of Ind App) : (at p. 377 of AIR) as follows:

'The effect of these provisions is that on a failure by either party to appoint an Arbitrator which includes (in their Lordships' opinion) a failure to appoint a substituted Arbitrator on the death or retirement of an Arbitrator originally appointed--the appointment is to be made by the Chairman on behalf of the defaulting party, so that in every such case there are to be two Arbitrators, one appointed by one of the parties and the other by the Chairman on behalf of the other party.'

11. Relying on these observations it has been argued on behalf of the respondent that the power of appointment of an Arbitrator by a party js not exhausted by a single execution but such power includes the power to appoint a substitute Arbitrator in case the Arbitrator previously appointed by him dies or retires, but the observations of the Judicial Committee have no application where a third person (as for instance in the present case the Secretary holding a particular office) is to make the appointment; and so the case is distinguishable. It appears to me however that the appointment by the Secretary, as contended by the learned counsel for the respondent, is virtually an appointment made by consent of parties because the parties agreed while entering into the contract to leave the choice of another person as Arbitrator to the Secretary, in case the Secretary himself was unable or unwilling to act as Arbitrator. So in effect instead of the parties themselves choosing or appointing an Arbitrator, they consented that the appointment would be made by the person designated in the agreement, namely, the person holding the office of Secretary, Ministry of Works, Housing and Supply. In other words the appointment was the result of consent of the parties themselves.

12. In a Patna case reported in Union of India v. D. P. Singh, : AIR1961Pat228 there was an arbitration clause to the effect that dispute or difference between the Railway Administration and the contractor would be referred to the sole arbitration of an officer who shall be nominated for the purpose by the General Manager Northern Railway, for the time being. The General Manager did not take any step for appointing an Arbitrator although requested to do so by the contractor. Thereupon an application was made under Section 8 of the Act of 1940 for appointment of an Arbitrator by the Court. The application was contested by the Union of India on the ground that the application under. Section 8 was not maintainable because it had no application to the facts of the present case. Raj Kishore Prosad, J. at p. 230 in dealing with the expression 'consent of the parties' as occurring in Section 8 of the Act observed:

'Only the General Manager of the petitioner had to nominate an officer of the Railway Administration as the sole Arbitrator, and on such nomination by the General Manager, the Arbitrator so nominated was to and must be deemed to be the Arbitrator appointed by the consent of the opposite party also. By this arbitration clause the opposite party, so to say, surrendered his consent and gave his consent in advance to the General Manager. of the petitioner and left to his discretion and delegated his own consent and power to appointan Arbitrator to him, who was given the solepower to nominate the arbitrator and on hisnomination of such an Arbitrator, under the termsof the Arbitration Agreement, the Arbitrator shallbe deemed to have been appointed as an Arbitratorby consent of the parties as contemplated by andwithin the meaning of Section 8(1)(a) ofthe Act.' (paragraph 8 of the judgment).

13. Then in paragraph 10 of the judgment the following further observations occur:

'It is inherent in the arbitration agreement itself, in the instant case, that the nomination of the Arbitrator by the General Manager shall be deemed to have been made by the consent of both the parties. There may be express provision to such an effect but even in the absence of any express provision, such a provision must be taken to be necessarily implied.'

14. In the present case Sri Desai had accepted the office of the Arbitrator and had entered on the reference but he did not complete the arbitration or make any Award within the period prescribed. After the expiry of the period, an application was made for extension of the period. This was opposed by the appellant and no order was made on the application which was disposed of on the 17th September 1962, but prior to that date Sri Desai had on the 29th August 1962 resigned; or in other words, expressed his unwillingness to act any further in the matter. To put it differently, Sri 'Desai had' refused to act and the moment he expressed his unwillingness to act, there was no longer any Arbitrator 'willing to act' as contemplated by the Arbitration clause. If Sri Desai had not resigned, it might be said that he was not actually functus officio. He might still proceed with the arbitration even after the expiry of the prescribed period and might make an Award, but such Award would be a nullity if the time to make the Award was not ultimately extended by the Court. This is clear from the decision of the Supreme Court reported in Hari Shankarlal v. Shambhunath, : [1962]2SCR720 of the report Reghubar Dayal, J. referring to Section 28 of the Arbitration Act observed :

'I am however inclined to the view that in view of the provisions of Section 28 it is not possible to say that the Arbitrators are not competent to act after the expiry of the period of four months from the date of their entering on the reference. The provisions of this section contemplate the Arbitration without having previously obtained the order of the Court extending the time of making the Award..... So long as the power vested in them to decide dispute between the parties is not withdrawn, they continue to be competent to act on the reference in expectation that the period for making the Award would be extended by the Court.'

15. The fact however remains that Arbitrator Sri Desai gave up or relinquished his office as Arbitrator by resigning--this was refusal to act or expression of unwillingness to act. Willingness to act means continued willingness to act till the arbitration is complete and not merely acceptance of office or willingness to act at the initial stage. It cannot mean that Arbitrator can proceed half-way and if thereafter he neglects or refuses to act, the arbitration will come to an end. In my view the contingency which would enable the Secretary to appoint a fresh Arbitrator happened as there was no Arbitrator willing to act after the resignation of Sri Desai. By resigning, Sri Desai had 'formally divested himself of the character of an Arbitrator', There is no indication in the arbitral tion clause that vacancy would not be supplied in such a case or that the power of the Secretary is extinguished by a single execution. If further differences or disputes arise, there is no question that the Secretary can make successive appointments for the purpose of arbitrating on such different disputes. It cannot be nor js it suggested that in such a case the power of appointment is exhausted. I therefore fail to see why the power is extinguished, if it turns out that there is no Arbitrator willing to act and the Arbitrator appointed has refused to act and has shed his character as Arbitrator. I am therefore unable to hold that the appointment of Sri Iyer is bad.

16. It was also argued on behalf of the appellant that in the present case after the prescribed period for making the Award expired, Desai had no further jurisdiction to act and so resignation after the expiry of the period means nothing and is not a refusal to act because he had no power or right to act after expiry of the period nor could he be said to be incapable of acting as incapacity has reference to physical disabiliy or infirmity and not to incapacity by reason of supervening circumstances. But it appears that after the view expressed by the Supreme Court in interpreting Rule 10 of the Bengal Chamber of Commerce Arbitration Rules, there is no warrant for limiting incapacity to physical incapacity only. The decision of the Supreme Court is reported in Juggilal Kamlapat v. General Fibre Dealers Ltd., : AIR1962SC1123 the Supreme Court observed :

'We are therefore of opinion that the words 'becomes incapable of acting' in Rule X are of wide amplitude and do not refer to cases only of physical incapacity but to any kind of incapacity arising after the appointment or even before the appointment provided it was known to the parties or to the Chamber in the present case.' (paragraph 14.)

17. So even if I were to hold that the power of the Secretary was exhausted after the appointment of Sri Desai and the second appointment of Sri Iyer could not be made, still there appears to be no impediment to arbitration because the Court in the circumstances of this case can make an appointment of the Arbitrator under Section 8(1)(b) of the Arbitration Act, 1940. It is well-settled that if the agreement does not indicate that the vacancy occurring in the office of the Arbitrator should not be supplied, the Arbitration does not become infructuous, inasmuch as the Court has power under Section 8(1)(b) to supply the vacancy and make the arbitration effective.

18. It was argued that Section 8(1)(b) contemplates 'appointed Arbitrator' chosen by consent of the parties and as in the present case the appointment was made by a person designated in the arbitration agreement, there is no 'appointed Arbitrator' within the meaning of Section 8(1)(b) of the Act. But as pointed out already the person designated in the agreement derives his power to appoint an Arbitrator from the arbitration agreement which is entered into by consent of parties. So the appointment by the person designated in the agreement is the appointed (arbitrator) by consent of parties.

19. It was then argued that even if all the conditions of Section 8(1)(b) are fulfilled, the Court is not bound to appoint an Arbitrator. The Court has still a discretion in the matter and until the Court in exercise of the discretion appoints an Arbitrator and thereby decides that the arbitration proceeding should go on, the Court will not exercise its discretion under Section 34 to stay the suit. This argument proceeds however on the assumption that the second appointment made by the Secretary is bad and the Court alone has in the facts of this case power to appoint a fresh Arbitrator. Reference is made to the language of Sub-section (2) of Section 8 which provides that the Court 'may' appoint an Arbitrator. In Gopalji v. Morarji, ILR 43 Bom 809: (AIR 1919 Bom 24) the Court construed 'may' as giving a discretion to the Court. In an English case reported in In re : Eyre and Leicester Corporation, (1892) 1 QB 136 it was held that when the preliminary steps indicated in the corresponding English Section have been taken, the Court is bound as a general rule to make the appointment. But I think the right principle to adopt is to interpret the word 'may' as conferring a discretionary power. But as a general rule when the conditions laid down in the section are fulfilled and the provisions of the section are attracted, the Court should exercise the power conferred under the section unless there are compelling circumstances justifying the exercise of the discretion otherwise.

20. It was urged that in this case there is justifiable ground for exercising the discretion otherwise and the ground put forward is that the respondent Union of India has been guilty of unreasonable delay in resorting to arbitration and so the order for stay should not have been made. It is pointed out that for about nine months the Secretary did not take steps to appoint any Arbitrator although the appellant was eager to go to arbitration. Now there is no doubt that for about nine months the Secretary remained inactive and there is no satisfactory explanation of this inaction. It was only when the appellant approached the Court with an application for appointment of Arbitrator that the Secretary hastened to appoint an Arbitrator. But it appears that alter such appointment was made, the appellant went on challenging the validity of the appointment of Sri Desai and took up an obstructive attitude to make the arbitration abortive and after Sri Desai resigned and Sri Iyer was appointed, he challenged the appointment of Sri Iyer also and to frustrate the arbitration agreement, he filed a suit in this Court. Thereupon the respondent made the application for stay, out of which this appeal arises.

21. Now the principle in such matter is that prima facie the arbitration agreement is binding on the parties to it and if one of them commits breach of that agreement by bringing a suit, he must take upon himself, the burden of establishing that sufficient reasons exist for inducing the Court to condone the breach of the agreement on his part by refusing to stay the suit and thus nullifying the arbitration. On the other hand, the applicant for stay has to establish that at the time when proceedings were commenced he was and at the time of making the application he remained ready and willing to do all things necessary to the proper conduct of the arbitration proceeding. In the present case although the respondent has been undoubtedly guilty of some delay in proceeding with the arbitration by not appointing an Arbitrator promptly when called upon to do so, the conduct of the respondent is not such as to show that its intention was to abandon the arbitration agreement. In the circumstances, it will not be proper to exercise discretion against the granting of stay of the suit and to refuse a stay. Reference was made to the case of Charles Osenten v. Johnston, 1942 AC 130 in support of the argument that this Court of appeal should in this case interfere with the discretion exercised by the trial Court. It may be pointed out that the principle enunciated in this case has been adopted by the Supreme Court in Printers (Mysore) Private Ltd, v. Pothan Joseph, : [1960]3SCR713 (see paragraphs 7 to 9 of the judgment).

22. But for the reasons already stated I do not see any ground for interfering with the discretion exercised by the trial Court. If for any reason the arbitration becomes impossible or infructuous, the Court has power to remove the stay and to proceed with the suit.

23. Attention of this Court was also drawn to the cases reported in Ladha Singh v. Jyoti Prosad Singha : AIR1940Cal105 Governor-General in Council v. Associated Live Stock Farm India) Ltd., : AIR1948Cal230 Rajani Kanta v. Panchanan Karati : AIR1937Cal388 Satyanarayanamurthi v. Venkataramanamurthi AIR, 1948 Mad 312 (FB) at p. 314: ILR (1948) Mad 837 (FB) at p. 847; Union of India v. Raj Narain Misra, ILR (1952) 1 Cal 324; Union of India v. New India Constructors, Delhi, ; Chief Engineer Buildings and Roads, Jaipur v. Harbans Singh, AIR 1955 Raj 30; Baranagore Jute Factory Co. v. Hulaschand Rupchand, : AIR1958Cal490 (Paragraph 24 of the judgment) and Karam Chand v. Sant Ram Tara Chand, . But it is not necessary to prolong this judgment by detailed discussions of these cases. It may however be pointed out that the interpretation put by Chakravartti, C. J. on R. VII of the Bengal Chamber of Commerce Arbitration Rules in : AIR1958Cal490 on which reliance was placed by the learned. Counsel for the respondent, has not been accepted by the Supreme Court in the case reported in : AIR1962SC1123 .

24. The other cases are distinguishable from the facts before us and so need not be dealt with at any length.

25. In my view for the reasons given above, this appeal must fail and it is accordingly dismissed with costs.

26. The time to make the award is extended by four months from date.

Mitter, J.

27. I agree.


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