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Ramanath Agarwalla Vs. Goenka and Co. and ors. - Court Judgment

LegalCrystal Citation
CourtKolkata High Court
Decided On
Case NumberFull Bench Reference No. 1 of 1964 in A.F.O.O. Nos. 206 to 208 of 1955
Reported inAIR1973Cal253,1972CriLJ1,77CWN317
ActsArbitration Act, 1940 - Sections 13 and 30
AppellantRamanath Agarwalla
RespondentGoenka and Co. and ors.
Appellant AdvocateRabindra Nath Mitra and ;Ranen Mitra, Advs.
Respondent AdvocateA.C. Bhabra, ;B.L. Vyas, ;Rajat Ghose and ;Mani Mohan Mukherjee, Advs.
DispositionAppeal dismissed
Cases ReferredAssodullah Makhdoomi v. Lassa Eaba.
- .....previous division bench.2. the facts are that on october 4, 1953. jwala pro ad sharma and j. n. minda. arbitrators in the matter of goenka & co. (sales) ltd., messrs. goenka & co. and ramnath asarwalla filed an award before the court of the subordinate judge at darjeeling along with an application praying for a decree in terms of the award. the application was registered as o. c. suit no. 81 of 1953. it is stated in the application that m/s. goenka & co., goenka & co. (sales) ltd. and sm. ramasundari devi, administratrix to the estate of n. c. goenka and messrs. goenka & co.. on the one hand, and ramnath asarwalla. on the other hand, had by a written agreement dated the 8th october. 1951, appointed the two applicants, namely, jwala prosad sharma and j. n. minda as arbitrators to make.....

Sankar Prasad Mitra, C.J.

1. These appeals were first heard by a Division Bench consisting of K. C. Das Gupta. J. and B. K. Guha. J. On the 18th September, 1958. the Division Bench referred certain questions of law to a Full Bench for determination. When the matter came up before the Full Bench, the reference was found to be incompetent on the ground that the whole case had not been referred. The Full Bench sent the case back to the Division Bench by its order of the 30th April, 1962. The appeals then came up before another Division Bench presided over by Baneriee, J. sitting with D. Basu. J. The Second Division Bench has referred the entire case in the three ap-peals to the Full Bench under Chap ter VII. Rule 2 of the Appellate Side Rules including the que tions of law that were referred by the previous Division Bench.

2. The facts are that on October 4, 1953. Jwala Pro ad Sharma and J. N. Minda. Arbitrators in the matter of Goenka & Co. (Sales) Ltd., Messrs. Goenka & Co. and Ramnath Asarwalla filed an award before the Court of the Subordinate Judge at Darjeeling along with an application praying for a decree in terms of the award. The application was registered as O. C. Suit No. 81 of 1953. It is stated in the application that M/s. Goenka & Co., Goenka & Co. (Sales) Ltd. and Sm. Ramasundari Devi, Administratrix to the estate of N. C. Goenka and Messrs. Goenka & Co.. on the one hand, and Ramnath Asarwalla. on the other hand, had by a written agreement dated the 8th October. 1951, appointed the two applicants, namely, Jwala Prosad Sharma and J. N. Minda as Arbitrators to make an award on disputes between the parties relating to their mutual accounts and 'their respective rights and liabilities regarding the business of Messrs. Goenka & Co. and Messrs. Goenka & Co. (Sales) Ltd.'

3. It would be convenient at this stage to set out the terms of the agreement dated the 8th October. 1951. The agreement is as follows :

'We hereby appoint Sri Jwala Pro-sad Sharma and Sri Jagannath Minda, both of Darjeeling, as arbitrators to look into the account books of Messrs. Goenka & Co. and Messrs. Goenka & Co, (Sales) Ltd. and to find out as to what amount is payable by both these companies to Sri Ramnath Agarwala or by Sri Ramnath Agarwala to both these companies and we agree to abide by the award of the arbitrators.

We agree that either party will make payment due to the other party within seven days from the date of award.

The books of account to be produced before the arbitrators duly adjusted for the purpose before 30th November. 1951.

Sd. R. S. Devi Sd. R. N. Agarwalla

8-10-1951 8-10-1951

Sd/- Dhanoolall



4. It is to be observed that by the terms of the agreement the Arbitrators were to look into certain account books and to find out what amounts were payable by one of the parties to the agreement to the other party or parties.

5. We may now set out the minutes before the Arbitrators :

'1. 8-10-1951. We Jagannath Mindaand Jwala Prasad Sharmaaccepted to arbitrate inthe above case.Sd. J. N. Minda8-10-1951.Sd. J. P. Sharma8-10-1951.2. 10-10-1951. In the ArbitrationAgreement signature ofDhanoolall has been obtained.Sd. J. N. Minda10-10-1951.Sd. J. P. Sharma10-10-1951.3. 12-10-1951. On our joint consentSri Sukhlal Minda hasbeen appointed umpire inthis case. We obtainedhis acceptance so that ifwe differ in our decisionthen the umpire willdecide finally.Sd J. N. Minda12-10-1951.Sd. J. P. Sharma12-10-1951.4. 12-5-1952. Received letter No. P/l/796/52 dated 2nd April,1952 from Sri RamnathAgarwala. Considered thatall parties be written sothat case be settled early.Sd. J. N. Minda12-5-1952.Sd. J. P. Sharma12-5-1952.5. 28-5-1952. Received letter No. GS/43/52/141 dated 21st May.1952 from Sri DhanoolallChirimar. Considered tosend copy of this letterto Sri Ramnath Agarwala.Sd. J. N. Minda28-5-1952.Sd. J. P. Sharma28-5-1952.6. 20-8-1952. Received letter No. P/1/125/52 d/- 20th August1952 from Ramnath Agarwala.Considered to sendcopies of this letter toother parties.Sd. J. N. Minda20-8-1952.Sd. J. P. Sharma20-8-1952.7. 31-10-1952. Letters sent to all partiesthat the hearing ofthe case is fixed at thepremises of Sri JwalaPrasad Sharma on 25thNovember. 1952 at 3.30P. M. All papers to befiled.Sd. J. N. Minda31-10-1952.Sd. J. P. Sharma31-10-1952.8. 25-11-1952. Sree Ramnath Agarwalaarrived at the appointedtime. He wasshown the letter No. 626dated 17th November.1952 of Goenka and Co.(Sales) Ltd, He was askedto give reply to thisletter. He said he wouldreply in writing later.Today Jagannath Mindais not present.Sd. Jwala P. SharmaSd. R. N. Agarwala9. 28-3-1953. Received letter No. P/12067/72/53 dated 26thMarch. 1953 from RamnathAgarwala. Consideredthat Sree DhanoolallChirimar is expectedshortly here. At that timedate of hearing will befixed in consultation with him.Sd. J. N. Minda28-3-1953.Sd. J. P. Sharma28-3-1953.10. 7-5-1953. We met Shri DhanoolallChirimar and Smt. RamasundariDevi at GoenkaLodge and they assuredthat towards the end ofMay their books willcome here in connectionwith Income-tax matterwhen they will intimateand after fixing a datecase will be decided.Sd. J. N. Minda7-5-1953.Sd. J. P. Sharma7-5-1953.11. 17-7-1953. Received letter No. P/1/Claim/53/53 dated 7thJuly. 1953 from RamnathAgarwala. Considered itand that all parties befinally informed that thecase will be heard on 16thAugust. 1953, Sunday at2 P. M. at the premisesof Sri Jaylall Nursingdass.Accordingly lettershave been despatched.Sd. J. N. Minda17-7-1953.Sd. J. P. Sharma17-7-1957.12. 16-8-1953. Sri Ramnath Agarwalawith his Pleader SriT.K. Pandit appeared intime. On behalf of otherparties none appeared norhave any fresh papersbeen filed. Therefore, at2 P. M. hearing of thecase was to be started exparte. From Sri RamnathAgarwala we receivedimportant papers andheard 'Bayan'. Papersfiled by other parties werealso seen. We both agreeingjointly delivered award.Sd. J. N. Minda16-8-1953.Sd. J. P. Sharma16-8-1953.'

6. Before the Subordinate Judge at Darjeeling the question arose as to when the Arbitrators had entered on the reference. The appellant before us contended that the Arbitrators entered on the reference on the 16th August. 1953. The learned Subordinate Judge has held that they entered appearance by the 31st October. 1952, and as the award was not made within four months of that date in terms of paragraph 3 of the First Schedule to the Arbitration Act, no decree on the award could be passed.

7. The learned Subordinate Judge has also been inclined to hold that the Arbitrators had misconducted themselves and this award was liable to be set aside.

8. The questions of law referred to us are as follows :--

'(1) When does an arbitrator enter on a reference Does he enter it as soon as he assumes the office of an arbitrator, or does any act as an arbitrator, or does he enter it only when he actually commences the decision of the matter in the presence of both parties or ex parte (2) Was Bajrangalal's case rightly decided in so far as it held that arbitrator must be held to have entered on the reference when they accepted their appointment ?

9. Elaborate arguments were advanced before us both on the above questions of law and on the point of misconduct.

10. It would be convenient to dispose of the charge of misconduct against the Arbitrators first. We have already pointed out that in the terms of the arbitration agreement, the Arbitrators were required to look into certain books of account and to find out the amounts due by one party to the other.

11. It is common case that the books of account were never produced before the Arbitrators although they had repeatedly called for those books. The Arbitrators eventually made their award on the basis of certain statements of accounts filed by the parties. They did riot take recourse, for instance, to the provisions of Section 43 of the Arbitration Act.

12. The position, therefore, is thatthe arbitration agreement lays down aparticular method by which the disputesare to be decided. The Arbitrators havenot complied with that method -- themethod of looking into the account booksof Messrs. Goenka & Co. and Gonekaend Co. (Sales') Ltd. -- in order to findout the amounts due. In other words,they have not carried out the mandategiven to them under the agreement torefer the disputes between the partiesto their arbitration. On these facts, wehave to hold that, they have misconduct-ed themselves and the award has to beset aside.

13. In support of this view, we may refer to the case of Smith v. Goff. (1845) 153 ER 475. A cause was referred by an order of Nisi Prius. which stated that 'the arbitrators should be at liberty, if they should think fit. to examine the parties and their respective witnesses on oath :'. It was held that it was discretionary with the arbitrators whether they would examine the witnesses on oath or not, and that it was no objection to their award that the witnesses were examined without being sworn, although the party against whom the award was made required, at the time, that they should be sworn. There is an observation of Parke. B. which is relevant for our purposes in this reference. Parke. B. has said:

' * * * * If you had intended it (examination of witnesses on oath) to be imperative on them (arbitrators), you should have had the order of reference framed accordingly, and have stated therein, that the arbitrators shall examine the witnesses on oath.'

In the conduct of arbitration proceedings, it is well-settled, the arbitrator or Umpire must conform to any directions which may be contained in the agreement of reference itself; vide. Halsbury's Laws of England, Third Edition, Vol. 2, pace 35. Article 80.

14. In the case of Jivaraibhai Ujamshi Sheth v. Chintamanrao Balaji, : [1964]5SCR480 , the Supreme Court has taken a similar view. The Supreme Court has held that where in respect of a dispute arising out of a partnership business, the primary duty of the arbitrator under the deed of reference, in which is incorporated the partnership agreement is to value the net assets of the firm and to award to the retiring partners a share therein, then In making the 'valuation of the firm', his jurisdiction is restricted to the manner provided in the partnership agreement. The Supreme Court has observed that if the parties set limits to action by the arbitrator, then the arbitrator has to follow the limits set for him and the Court can find that he has exceeded his jurisdiction on proof of such action. The Supreme Court adds that the assumption of jurisdiction not possessed by the arbitrator renders the award, to the extent to which it is beyond the arbitrator's jurisdiction, invalid.

15. In our case, the Arbitrator's jurisdiction was limited to looking into the books of account of two commercial concerns and finding out the amounts due by one party to the other. The Arbitrators have made their award without looking into any books. They have, therefore, exceeded their jurisdiction end the award is invalid. It was argued before us that as the persons in charge of these books did not produce the books the Arbitrators were at liberty to draw adverse inferences. We are not inclined to examine the soundness of this argument as we find upon going through the award that the Arbitrators have not proceeded on the basis of any adverse inference.

16. The two questions of law referred to above are however before us and we have to express our views on them which we now propose to do.

17. Section 2 of the Arbitration Act defines a 'reference'. A 'reference' means a reference to arbitration. Then Section 3 says that an arbitration agreement, unless a different intention is expressed therein, shall be deemed to include the provisions set not in the First Schedule in so far as they are applicable to the reference. In the First Schedule three paragraphs are relevant for our purpose. These are paragraphs 3, 4 and 6. They run thus :

'3. The arbitrators shall make their award within four months after entering on the reference or after having been called upon to act by notice in writing from any party to the arbitration agreement or within such extended time as the Court may allow.

4. If the arbitrators have allowed their time to expire without making an award or have delivered to any party to the arbitration agreement or to the umpire a notice in writing stating that they cannot agree, the umpire shall forthwith enter on the reference in lieu of the arbitrators.

6. The parties to the reference and all persons claiming under them, shall, subject to the provisions of any law for the time being in force, submit to be examined by the arbitrators or umpire on oath pr affirmation in relation to the matters in difference and shall, subject as aforesaid, produce before the arbitrators or umpire all books, deeds, papers, accounts, writings and documents within their possession or power respectively, which may be required or called for, and do all other things which, during the proceedings on the reference, the arbitrators or umpire may require,'

Then we come to Sections 9 end 11 of the Arbitration Act. These sections give power to the Court to appoint a new Arbitrator or in certain cases, a sole Arbitrator and to remove Arbitrators or umpires in certain circumstances. The expression relevant for our purposes in these sections is that these powers can be exercised, inter alia, when either of the appointed Arbitrators 'neglects pr refuses to act, or is incapable of acting' and the explanation to Section 9 says that the fact that an Arbitrator or umpire, after a request by either party to enter on and proceed with the reference, does not within one month comply with this request, may constitute a neglect or refusal to act within the meaning of Section 8 and Section 9.

18. On an analysis of the above provisions of the Arbitration Act, we find that the legislature has used four different expressions, viz. (1) an Arbitrator may be 'called upon to act' (2) an Arbitrator 'enters on a reference.' (3) en Arbitrator 'proceeds with the reference' and (4) an Arbitrator 'makes an award.'

19. We have been invited to determine what is meant bv en Arbitrator entering on a reference as there are conflicting decisions on the subject. In Baker v. Stephens. (1866-671 2 QB 523, it has been held 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.

20. This view was accepted by some of the Courts in India. In Nanda Kishore Goswami v. Bally Co-op. Credit Society Ltd. 47 Cal 478 at P. 480 = (AIR 1943 Cal 255) (B. K. Mukherjea, J. sitting with Blank. J.) has observed that It is necessary that the Arbitrator 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.

21. The Allahabad High Court also in a previous case in Sardar Mal Hardat Rai v. Sheo Baksh Rai Sri Narain, AIR 1922 AH 106, adopted the view expressed in (1866-67) 2 QB 523.

22. The other view Is the one taken by the English Court of Appeal in Iossifoglu v. Coumantaros, (1941) 1 KB 396. The Court of Appeal has held that Arbitrators enter upon a reference as soon as they have accepted their appointment and have communicated with each other about the reference. In this decision, the case of (1867) 2 QB 523 (supra) was not considered at all.

23. This latter view of English Courts has been adopted in some of the decisions of our Courts.

24. In Bajranglal Laduram v. Ganesh Commercial Co. Ltd. : AIR1951Cal78 a Division Bench of our Court considered the rules of arbitration of the Bengal Chamber of Commerce. In these rules there are no provisions for hearing of parties unless the Arbitrators thought fit. Our Court followed the decision in Lossifoglu's case, (1941) 1 KB 396 and stated the Arbitrators appointed under the rules of the Bengal Chamber of Commerce must be held to have entered on the reference when thev accepted their appointment and instructed the Registrar to call for statements from the parties. The main judgment has been delivered by Harries. C. J., Chatterjee. J. in concurring judgment has said at page 159 3

'Arbitrators enter upon reference when they actually begin to discharge the functions of arbitrators and that does not connote that both the parties must be before the arbitrators or that there must be some previous peremptory order compelling the arbitrators to conclude the hearing ex parte. Issuing mandatory direction for pleadings, or for interrogatories or fixing peremptory dates for hearing can only be done by the arbitrators when they have begun their work as such and taken uPn themselves the functions of arbitrators.'

25. The Supreme Court in Hari Shanker Lal v. Shambhu Nath, : [1962]2SCR720 , considered the provisions of paragraph 3 of the First Schedule to the Arbitration Act. In the majority decision delivered by Subbe Rao. J. there are no observations relevant for our purposes except that a distinction has been made between the expression 'enter on the reference' and 'after having been called upon to act.' In this concurring judgment. Raghubar Dayal. J., however, has been pleased to state :

'I simply note that I agree with the view expressed in (1941) 1 KB 396 that arbitrators enter upon a reference as soon as they have accepted their appointment and have communicated with each other about the reference.'

26. The Punjab High Court in Harish Cbandra Saksena v. Union of India, ILR (1966) 1 Punj 1, has held that an arbitrator enters on the reference when he takes upon himself the office of the arbitrator and exercises some functions as arbitrator.

27. These are the two conflicting views which we have been called upon to consider in this reference.

28. We have already observed that an Arbitrator under the provisions of the Arbitration Act is required to act as an Arbitrator. His acting as arbitrator includes (a) entering on reference. (b) proceeding with the reference, and (c) making an award. It follows that the expression 'acting as an Arbitrator' is wider than 'entering on the reference'. Now, the dictionary meaning of 'to enter on', in the context in which the expression has been used in the Arbitration Act, is 'to take the first steo upon or in' or 'to begin to deal with fa subject') : vide Shorter Oxford English Dictionary. Vol. 1. p. 646.

29. Entering on reference, therefore, refers to the first step that the Arbitrator takes in the reference, that is to say, when he begins to deal with the reference. The Arbitrator, under the Act, may have to do various ministerial acts but the doing of any of the ministerial acts is not entering on the reference. It is only when he first applies his mind to the dispute referred to him that he enters on the reference. When, however, in a particular case, he first applied his mind to the dispute would depend, on the facts and circumstances of that case.

30. There have been a number of recent decisions on this point which we may conveniently refer to. The Patna High Court in Sonevlal Thakur v. Lachhminarain. : AIR1957Pat395 at p. 397 in paragraph 5 has stated that an Arbitrator does not enter upon a reference the moment he accepts to work as en arbitrator, nor can it be said that he enters upon a reference only when he actually hears the reference. An Arbitrator enters upon a reference when, after having accepted the reference, he applies his mind and does something in furtherance and execution of the work of arbitration. The exact date as to when an arbitrator enters on a reference in a particular case however, has to be determined on the facts and circumstances of the case.

31. With this view of the Patna High Court, we are inclined to agree.

32. The High Court at Madhya Pradesh has taken a similar view in Ramsehai Sheduram v. Harishchandra Duttchandji, : AIR1963MP143 it is observed :

'It is always a question of fact, on what date the arbitrator or the umpire as the Case may be, actually entered on the- reference, to be answered in accordance with the circumstances of each case. It is not necessarily the date on which the arbitrator has before him the versions of the different parties of the subject-matter of the controversy in the form of written-statements or affidavits or oral depositions though immediate entry on the reference is not inconceivable. It would be the date on which the arbitrator for umpire) does the first appropriate judicial act in connection with the controversy referred to him by way of examining witnesses, hearing arguments and the like.'

33. The High Court at Jammu & Kashmir in Assodullah Makhdoomi v. Lassa Eaba. AIR 1966 J. & K. 1. in para. 38 at p. 8, on the facts of that case has held that the Arbitrator would be deemed to have entered on the reference on that day when he applied his mind to the dispute between the parties.

34. The latest decision is that of the Orissa High Court in Kalinga Otto (P.) Ltd. v Charanjit Kochhar. : AIR1972Ori172 - The Orissa High Court has followed the view of the Patna High Court, we have alreadv referred to.

35. We. therefore, answer the questions referred to us as follows :

(1) An Arbitrator does not enter on the reference as soon as he assumes the office of an Arbitrator. An Arbitrator does not necessarily enter on the reference when he actually commences the decision of the matter in the presence of both parties or ex parte. An Arbitrator enters on a reference when he first applies his mind to the dispute or controversy before him depending on the facts and circumstances of each case. (2) In view of our answer to question No. 1, this question need not be answered.

36. In the instant case, we have held that the award is invalid as the Arbitrators had misconducted themselves. We do not therefore express any opinion as to when precisely they entered on the reference as that would be of mere academic interest.

37. In the result, these appeals are dismissed. There will be no order as to costs in these appeals.

Ghose, J.

38. I agree

Sabyasachi Mukharji, J.

39. I agree.

S.K. Datta, J.

40. I agree.

Janah, J.

41. I agree.

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